QUESTION: I am looking to invest as an individual and have see different HYIP and other private off-shore programs. As a US Citizen can I legally invest in these programs and just file gains when I withdraw gains from an IntGold or eGOLD account?
REPLY: The tax treatment of any investment (whether U.S. or foreign) is dependent on the nature of the investment and on the kind of entity used to own the investment -- if any.
Investments that pay interest are subject to U.S. tax as the interest is earned, although there are some exceptions for certificates of deposit that mature within one year from the date of issue. The interest that accumulates on discounted debt obligations is also subject to tax in the year the interest is earned.
Dividend income may or may not be eligible for the 15% top federal rate on "qualified " dividends. Long term capital gains will usually be eligible for a 15% top rate and are not subject to tax until a gain is realized, but there are exceptions.
Investment income earned by a foreign corporation that is controlled by a U.S. person will be subject to tax as ordinary income in the year that the income is earned by the corporation -- even if the income is not distributed. If a U.S. person is an investor in a foreign mutual fund (also known as a passive foreign investment company or PFIC) the income is taxable as it is distributed and gains are taxable as shares are sold or transferred by gift or bequest. However, income from the accumulated earnings of a PFIC is subject to a very punitive method of taxation and PFICS should generally be avoided unless all of the income is distributed each year.
Different rules apply if the investment is a foreign annuity, a foreign life insuance policy, foreign real estate or made through a foreign partnership or a foreign trust.
Information about the U.S. treatment of various foreign investments is available in my report on "Tax Angles for Offshore Investors". Printed copies can be ordered at http://store.yahoo.com/offshorepress/taxanforofin.html. A digital copy can be ordered at http://store.yahoo.com/offshorepress/taxanforofin.html
You didn't ask me about offshore High Yield Investment Programs (HYIP), but I feel obliged to strongly suggest EXTREME CAUTION. I have helped a number of hapless investors who were victims of various offshore HYIP deals to get straight with the IRS, but I have not been able to help them to recover their money. For additional comments on
that subject, see http://www.offshorepress.co /duediligence.htm and
http://www.quatloos.com/stkscams/hyips.htm
By Vern Jacobs
You can read more great articles like this by Joining the Yahoo Group called "The Jacobs Report"
The comments in this memorandum are not intended to constitute an opinion regarding any specific tax issues because additional tax issues may exist that could affect the tax treatment of the tax issues addressed in this memo. This memorandum does not consider or reach a conclusion with respect to those additional issues and was not written and cannot be used for the purpose of avoiding penalties under code section 6662(d) with respect to those issues outside the scope of the memorandum. For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm
