Investing in Gold and Other Precious Metals: Tax Pitfalls

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With the price of commodities sky-rocketing in the past decade, many individuals have made substantial gains by directly investing in physical gold and other precious metals, especially in popular investment vehicles such as gold Exchange Traded Funds (ETF’s). However, there may be a downside for unsuspecting investors when it comes to paying taxes on those gains.

The general rule in the US is that gains on the direct sale or exchange of precious metals are taxed at the “collectible” rate (currently 28%), and not the more favorable capital gains rates that other common investments, such as most stocks, receive. The IRS has further specified that gold ETF’s are also taxed at this higher rate (however, certain exceptions may apply). In comparison, capital gains on the sale of precious metal mining companies on most listed stock exchanges, however, are taxed at the more favorable rates.

There are many other aspects of taxation that are too complex to detail for the purposes of a brief explanatory article. Additionally, various expenses associated with investing in physical metals may be deductible, depending upon your circumstances.

If You Plan to Sell Your Gold and Other Precious Metals Investments, Contact Sherayzen Law Office for Tax Advice!

With proper tax planning, it is possible to substantially limit the amount of taxes you will pay when you sell your physical gold or other precious metals. Sherayzen Law Office has the experience you need to answer all of your tax and international tax questions. Call (952) 500-8159 for a consultation today.

This article is intended to give a brief summary of these issues, and should not be construed as legal or tax advice.

Foreign Tax Credit: General Overview

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US tax residents and citizens are taxed based upon their worldwide income. This can often result in individuals being subject to double taxation. To provide relief from this problem, the Foreign Tax Credit (FTC) provisions were enacted. There are two types of FTC’s, the direct credit and the indirect credit.

Direct Foreign Tax Credit

In general, IRC Section 901 allows for direct credit for foreign taxes paid by US taxpayers. In general, taxpayers must have directly incurred the taxes paid in order to qualify for the credit. US income tax liability is reduced on a dollar-for-dollar basis under this credit.

Indirect Foreign Tax Credit

If a US corporation conducts operations through a foreign subsidiary, the direct FTC is not allowed for foreign taxes paid by the subsidiary. Instead, for US corporate taxpayers with 10% or more US shareholders that receive actual or constructive dividends from foreign corporation that have paid foreign income taxes, an indirect FTC may be taken. The indirect FTC is determined based upon a specified computation. US corporations that elect the FTC for deem- paid for foreign taxes must “gross up”, or add to income, any dividend income by the amount of deem-paid taxes under IRC Section 78.

Contact Sherayzen Law Office NOW for the FTC Legal Help

This article is intended to give a very brief summary of these issues, and should not be construed as legal or tax advice. Reporting foreign-earned income often necessitates an experienced understanding of complex regulations, IRC statutes, and case law, and IRS penalties for failure to comply can be substantial. If you have further questions regarding your own tax circumstances, Sherayzen Law Office offers professional advice for all of your cross-border, international, and other tax needs. Call now at (952) 500-8159 for a consultation today.

US-Canada Tax Treaty: Beware of Income Exemption Traps

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Are you a US taxpayer earning income in Canada? Do you rely upon the US-Canada tax treaty (officially known as, The Convention with Respect to Taxes on Income and on Capital, U.S.-Can., Sept. 26, 1980, T.I.A.S. No. 11,087) exemptions to claim deductions or limit reporting of income for US tax purposes?

If so, then you need to be aware that the tax treaty between the US and Canada does not always provide protections for US taxpayers- even if the treaty specifically states so. A recent example is the Jamieson v. Commissioner case.

In Jamieson v. Commissioner, 08-1253, the taxpayers were US citizens living, and earning income, in Canada in 2003. After paying their Canadian taxes, they claimed the foreign tax credit on their US tax returns, resulting in a net liability. They did not compute any AMT liability under the provisions of Internal Revenue Code (IRC) Section 55, taking the position that the Article XXIV of The US-Canada Treaty, limiting double taxation, precluded such a liability.

However, the IRS argued that under IRC Section 59(a)(2), enacted as part of the Tax Reform Act of 1986, which reduced the foreign tax for AMT purposes to 90% of a taxpayer’s AMT liability, an AMT liability existed. (Section 59(a)(2) was repealed in relevant part by the American Jobs Creation Act of 2004).

The US Tax Court ruled for the IRS. A Federal District Appeals Court affirmed, determining that Section 59(a)(2) superseded the US-Canadian Tax Treaty. The court held that the US Supreme Court case Whitney v. Robertson “last-in-time” rule governed in the case, in examining conflicts between treaties and statutes. The rule provides that when an inconsistency exists, whichever enactments came later in time will prevail over earlier ones.

Thus, the court determined that Section 59(a)(2) superseded the treaty, and was thus the last expression of the sovereign will. Furthermore, the court cited a DC Court of Appeals case in which it was determined that the IRS Technical and Miscellaneous Revenue Act of 1988, specifying that Section 59(a)(2) and other applicable sections was intended by Congress to supersede any conflicting treaty provisions.

This article is intended to give a brief summary of these issues, and should not be construed as legal or tax advice. Reporting foreign-earned income often necessitates an experienced understanding of complex regulations, IRC statutes, and case law, especially since the IRS penalties for failure to comply can be substantial.

If you have further questions regarding your own tax circumstances, Sherayzen Law Office offers professional advice for all of your cross-border, international, and other tax needs. Call (952) 500-8159 for a consultation today.

Eligibility for Voluntary Classification Settlement Program

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As discussed in an earlier article, I already explained the essence of a new Voluntary Classification Settlement Program (“VCSP”) announced by the IRS earlier this week. I then explored the application process. In this essay, I would like to explore the general eligibility requirements for the VCSP.

Generally, the VCSP is available for to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

In order to be eligible for the VCSP, a taxpayer must meet three requirements.

First, the applicant must have consistently treated its workers in the past as nonemployees.

Second, the applicant must have filed all required Forms 1099 for the workers for the previous three years.

Finally, the third requirement is that the applicant cannot currently be under audit by the IRS, the Department of Labor, or any other state agency concerning the classification of these workers. Note that a taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit.

Contact Sherayzen Law Office NOW to Obtain VCSP Representation

If you wish to participate in the VCSP, you should contact Sherayzen Law Office immediately. Our experienced tax firm will rigorously represent your interests during the entire process of the Voluntary Classification Settlement Program and strive to achieve the most satisfactory and efficient resolution of your case.

Application Process for Voluntary Classification Settlement Program

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As was discussed in an earlier article, the IRS announced a new Voluntary Classification Settlement Program that offers concrete benefits to participating employers. Among the chief benefits are substantially lower payment by employers of the potentially overdue taxes (without any interests and penalties) and a relatively simple way of resolving this potentially grave problem. Additional benefits also include limited audit protection.

Eligible taxpayers who wish to participate in the VCSP must submit an application for participation in the program. Along with the application, the employer should provide to the IRS the name of its tax attorney (or an authorized representative) with a valid Power of Attorney (Form 2848). The IRS will contact the attorney to complete the process once it has reviewed the application and verified the taxpayer’s eligibility. Taxpayers whose application has been accepted will enter into a closing agreement with the IRS to finalize the terms of the VCSP and will simultaneously make full and complete payment of any amount due under the closing agreement.

It is important to emphasize that the IRS retains discretion whether to accept a taxpayer’s application for the VCSP. This is why it is important for the taxpayer to retain a competent tax attorney to represent him, even if this is an out-of-state attorney.

Contact Sherayzen Law Office for VCSP Representation

If you wish to participate in the VCSP, you should contact Sherayzen Law Office immediately. Our experienced tax firm will guide you through the entire process of Voluntary Classification Settlement Program and strive to achieve the most satisfactory and efficient resolution of your case.