You have covered the ALLOCATED aspect of the Perth Mint Certificate Program and also the Perth Mint DEPOSITORY SERVICES (a completely different service, which operates like a private client bank account or stockbroking account, except with balances of precious metals in troy ounces—and IS reportable); however, the UNALLOCATED aspect of the Mint’s Certificate Program appears to have not been addressed.
With the UNallocated Bullion program, one has title to precious metal deposited in an UNsegregated storage account, and is issued a Perth Mint Certificate. This is not a “managed fund”; it is simply a pool of unsegregated precious metal in which one purchases an interest.
The following description of the Certificate Program appears on the Perth Mint’s website:
“With unallocated storage, also known as a metal account, clients purchase an interest in a pool of precious metal held by The Perth Mint. The Mint purchases an ounce of precious metal from the spot market for every unallocated ounce it sells to clients. Accordingly every unallocated ounce is 100% backed.
“The precious metal purchased by the Mint is recorded on its balance sheet as an asset and the unallocated amounts sold to clients are recorded as a liability.
“At purchase, clients only pay for the precious metal. There are no fabrication charges or storage fees, until clients elect to convert their unallocated into a specific coin or bar, which they can do at any time.”
Since this question has not previously been specifically addressed or answered, I would really appreciate your view on the UNALLOCATED aspect of the Certificate Program in relation to the FBAR disclosure requirements.
REPLY (by Vern Jacobs): My comments about allocated metals accounts and about the Perth Mint depository services are simply my interpretations of some very brief information in the relevant law and the IRS communications about the treatment of gold. In the relevant part of the law passed by the Bank Secrecy Act in 1970, Title 31, Sect. 5312 refers to money, credit, securities and gold as examples of typical transactions of a “financial agency”.
When asked about whether gold bullion is a reportable account in a national phone forum between the IRS and a large number of tax professionals, the IRS said, “Yes”.
Section 4.26.16.3.2 of the IRS Internal Revenue Manual states that “Other financial accounts generally encompass any accounts in which the assets are held in a co-mingled fund and the account owner holds an equity interest in the fund.”
I can see the reasons why many people would not regard the Perth MInt Certificate Program to be a “financial Account.” However, based on the published positions of the IRS, it seems to me that they would take the position that an unallocated gold storage account is a reportable account. But that’s just my best guess and other tax professionals might not agree with me.
The problem is that if your Certificate program is not reported and is somehow discovered by the IRS, they would be likely to take the position that your failure to disclose the account represents a willful failure, for which the potential penalties are far greater than for a non-willful failure to file the form. The cost of taking the matter to court would be substantial and I believe that most judges would not regard privacy concerns as a justification for non-reporting.
But that’s just my two cents.
Vern
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