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ExecConsult

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  1. For dinar investors, the Roth IRA is the best possible way to save taxes. The company I have been recommending to people is NAFEP.com. Everyone I have spoken with who has used them has been very happy and they will hold the dinar in one of their gold vaults. It is also important to note that it may be possible to get around the waiting period and penalties. Please see the following post by "On_Reserve" for some details: Other things to consider would be: 1) If you live in a state that has state income taxes, use "estimated tax payments" to pay your state income tax bill in the same year as you received the income. This way when April of the following year rolls around and you are figuring taxes, the amounts paid to the state are deductible against the income for federal taxes. 2) Oil and Gas investments - Oil and Gas investments have deductions which are sometimes even greater than the income generated. If you invest wisely, you could have huge deductions to offset your income from the dinar & then you can have continued income from the investment and continued deductions to offset income. 3) IF you are charitably inclined you should seriously consider Charitable Lead Trusts, Charitable Remainder Trusts, and other similar charitable planning instruments 4) Any gift to charity should be made in physical dinar and should be made post-RV so you can get a bigger deduction for your charitable gift (or at least have the argument to be able to claim the large charitable deduction) Best of Blessings, Mark
  2. Easyrider, The information you brought over from DD is correct. However, it is missing a very important piece. Those placing dinar in a CRT may never have to worry about how their investments are structured for income purposes. Following is why: Under the four tiered tax system for CRTs, ALL of tier one must be paid out for the current year and all prior years before any tier 2 income is considered. Within tier 2 ALL of short-term capital gains must be paid out for the current year and all prior years before the 28% property income (i.e. artwork) is considered. This continues on down. To get to each successive level the level above (of higher tax percentage) must be completely exhausted. The reason this is critical to dinar investors is that when placing dinar in a CRT, the majority of the income that CRT ever sees is going to come from exchanging dinar for USD. Whether you believe that it will be ordinary income or capital gains, what is important to understand is that you will most likely never be able to exhaust the income from the exchange to get to any level with better tax treatment beneath it before the CRT terminates. Best of Blessings, Mark
  3. There is no easy answer. My analysis of current IRS views is that we should be paying ordinary income taxes under section 988. (see my analysis here: ) On the other hand, I argued against that in a submission I made to the IRS asking for clear guidance on the issues. The text of that submission may be found here: ) Please feel free to take either resource to your tax attorney or CPA post RV and discuss your options. Best of Blessings, Mark
  4. My research leads me to believe that this does not apply to us. This deals with trading in contracts instead of physical assets. Blessings, Mark
  5. You are in San Diego? I am actually taking a group of people to see an law firm in your back yard. Joseph Strazzeri and Steve Mancini are estate planning attorneys who are very experienced in dealing with people who have very large estates (way beyond anything I have ever dealt with). Understand, they are not sold on the dinar as an investment, but post RV it won't matter. You are just another rich person in need of help and they are good at helping. Best of Blessings, Mark
  6. Tracy - thank you for the kind words. I wish this was a definitive response but it isn't. These are my arguments to the IRS about the way things "should be." My belief about current law is just the opposite. My analysis of current law and regulations leads me to believe that right now the IRS is looking for "intent." I believe that under the current system if you or I are audited, since our intent in purchasing dinar was for investment, the IRS will assess ordinary income treatment to any gains we have. What I am doing with this submission is pointing out why I believe it should be otherwise and trying to get the IRS to do something to formally and publicly agree that it should be long-term capital gains. Now we have to see if they bite or they just ignore me. My suggestion is that you discuss this with your CPA and/or attorney and have them advise you on your options. Best of Blessings, Mark
  7. It was gently pointed out to me that I had my numbers off in the background section. The number reads $0.008 but should have been $0.0008. My apologies. Best of Blessings, Mark
  8. To understand this clearly you must focus on only a couple of simple concepts: basis and income recognition. First lets talk basis. The "basis" you have in any asset is the amount you spent to get the asset. You also add in costs of getting the asset (i.e. deliver costs) and any costs of improvements to the asset. For your situation the application is simple. Your basis is the total amount you spent to get the dinar. The market value of the dinar does not matter. For income recognition we need an event that will determine the value to be received. For you that will be the event of exchanging the dinar for USD. When the RV takes place does not matter at all. What matters is when you have an income recognition event. So this is how it works - your basis is whatever you paid for the dinar - your income is determined at time of exchange (what you get for the dinar less your basis). When you can determine the income is when you recognize the income. As an example, lets say that when the RV takes place you exchange 100,000 dinar for $300,000. (Assume you have a basis of $3,000.) You decide to hold the rest of your dinar into March of 2012. For 2011 you have income of $297,000. The rest of the income is recognized in March of 2012 when you do the exchange. Simply restated. You have income recognition when you do the exchange. That is it - period. So if it is really that simple, why do people talk about timing of the RV with their dinar so much? Typically there are two reasons to discuss this. One is for assets that will be "capital gains assets" if held for more than 12 months. However, the timing of the RV is not important here. Only the timing of the income recognition (exchange) is important to determine the holding period. The other reason to discuss timing is for "Gift Tax" purposes. When making a gift you must take into account the value of the asset at the time of the gift. That is all. If the value is too high, the person making the gift will have gift tax consequences. For income tax purposes, the person receiving the gift generally takes the basis (and holding period) of the person giving the gift. I hope that is helpful. Best of Blessings, Mark Thank you all for your kind words. I don't expect to hear anything back from the IRS directly, but if I do I'll be sure to pass it along. What I expect is that we will have to wait for the IRS to issue their annual guidance statements. Either they will give guidance or they won't. We can only wait, hope, and pray. Best of Blessings, Mark
  9. I have attached a PDF of the document or you can find and download it here: http://cid-7df30d726eef249f.office.live.com/browse.aspx/.Documents?Bsrc=EMSHOO&Bpub=SN.Notifications Best of Blessings, Mark Recommendation for Guidance Priority List.pdf
  10. For a long time now I have preached that my analysis of the law and regulations leads to a conclusion that the IRS will view income from currency exchange based on our investment as ordinary income. My analysis can be found here: Now I'm going to give you arguments for the other side. (Believe it or not.) I never stopped looking for an appropriate argument to save us on taxes. This may be a good start. I was convinced by another professional to make a submission to the IRS to request to be added to the Guidance Priority List to get guidance for out tax situation. When I drafted the document (with some help from others), I argued the side of capital gains taxes. Do I believe my arguments? Of course I do. I would not say it if I didn't believe it. My analysis of the law linked to above tells what I believe is the IRS' current stance based on current law and regulations. My request to the IRS copied below shows how I think things should be. While this is not a legal opinion and you can not claim to be my client having received legal advice, I think these arguments may be good enough to support a claim on your return of capital gains. HOWEVER, I'd still figure ordinary income and put the rest away in an interest bearing account in case the IRS comes asking for it. Hope you enjoy it. Best of Blessings, Mark Plain Text Follows: (Sorry for lousy formatting in plain text.) Recommendation for the 2011-2012 Guidance Priority List Part I Introduction I am in receipt of a request for public comment on recommendations for items that should be included on the 2011-2012 Guidance Priority List. I, therefore, am submitting a recommendation for inclusion on the 2011-2012 Guidance Priority List based on the criteria provided in Notice 2011-39. 1) The recommended guidance resolves significant issues relevant to many taxpayers; 2) The recommended guidance promotes sound tax administration; 3) The recommended guidance can be drafted in a manner that will enable taxpayers to easily understand and apply the guidance; 4) The recommended guidance involves regulations that are outmoded, ineffective, insufficient or excessively burdensome and that should be modified, streamlined, expanded, or repealed; 5) The Service can administer the recommended guidance on a uniform basis; 6) The recommended guidance reduces controversy and lessens the burden on taxpayers or the Service. 1.01 Executive Summary The professional community is divided in its opinions about taxes to be assessed to an individual invested in physical nonfunctional currency. One group of professionals believes such transactions are capital gains transactions falling under Section 988(e)(2). Another group of professionals believes just as strongly that Section 988(e)(3) excepts their clients from this treatment and they must instead pay taxes on ordinary income. Without a clear statement from the Service about how the nature of the tax is to be determined, it will have to be decided after the fact, on an individual basis, through private letter rulings, audits, and litigation. The crux of the problem lies in differing interpretations of the phrase, “expenses properly allocable to such transaction meet the requirements of” section 212 or section 162. It is essential that a measurable and objective means is given to determine the application of this language in a uniform and consistent manner. While historically immaterial, recent world events have made the issue ripe for guidance. 1.02 Background & History of Issue In 1990 the value of the Kuwaiti Dinar dropped from over $3.00 to less than $0.50 due to Iraq's invasion of Kuwait. Many currency speculators bought Kuwaiti dinar with a market value as low as $0.10. When Kuwait's government was restored, the value of the Kuwaiti dinar was reinstated. Those who purchased the currency for mere pennies were now able to exchange it for over $3.00. Many people became millionaires over night. Kuwait became the nugget that sparked the equivalent of a modern day currency gold rush. In response to Iraq's invasion of Kuwait, the United Nations Security Counsel (UNSC) placed severe restrictions on trade with Iraq as well as adding other restrictions that would not be lifted until such time as a host of conditions had been met. At the time the restrictions were put in place, the Iraqi dinar (IQD) was trading at over $3.00. The currency immediately devalued. Upon the invasion of Iraq by allied forces, the value of the currency dropped even further. Currency speculators who had profited from what had happened in Kuwait saw another opportunity and purchased Iraqi Dinar (IQD) as low as $0.001. In 2004 IQD was selling for about $0.005. For the past few years it has held stable at around $0.008. The news of the potential for profit with IQD spread quickly. For over seven years people have been buying IQD as a speculative investment awaiting the day that all of the UNSC restrictions are lifted, a full government is seated, and (along with the International Monetary Fund (IMF)) the Iraqi government revalues its currency to appropriate values based on its wealth of natural resources and other economic factors. These speculators stand to reap rewards far in excess of those who invested in Kuwaiti dinar. However, a review of current legislation, regulations, and publications does not give clear guidance on how these millions of dollars should be taxed. The problems discussed in this recommendation for guidance have existed for some time. However, until now they have been largely immaterial. Not enough people were affected and for those who may have been affected, not enough money was involved to make it worthwhile to regard with any real concern. The thousands of people currently involved in currency speculation and the enormous potential profits make this an appropriate topic for immediate guidance. While I have been reticent to request any official instruction up to this point because of the speculative nature of the investment, the wealth of documentation and information pointing toward the imminence of the factors necessary for growth in the value of the IQD, the necessity for clarity, the number of people affected by this issue, and the billions of dollars generally (and hundreds of millions of dollars at stake for those I have personally counseled) bring me to the point that I believe it is both prudent and appropriate to request guidance. (Examples of events that lead me to believe that now is an appropriate time to request guidance are: In February of this year, the UN Security Council met and released Iraq from nearly 20 years of restrictions. Since that time large numbers of contracts with the Iraqi government have been announced for oil, infrastructure, and general development. The few resolutions made by the UNSC in February regarding things that Iraq still needed to do were to be resolved by June of this year. The US Treasury department has completed their work with the Iraqi government to develop modern, computerized banking infrastructure. The Iraqi Stock Exchange is in place. Hedge funds and other large investors have begun putting large amounts of money into the development of Iraq. Iraq has one of the largest oil reserves in the world. Prime Minister Nouri Al Maliki made a speech to the Iraqi people on Friday the 27TH of May 2011. It is rumored that in this speech he stated that the dinar would be a frontrunner among the currencies of the world. Unfortunately, I will not have time to verify the contents of the speech prior to submission of this document.) Even if the government of Iraq should choose (for whatever reason) to go against the direction of the International Monetary Fund (IMF) and does not revalue their currency, once released from the UNSC restrictions, the value of the IQD will grow to match market pressures and reflect the countries underlying economic potential. Even a move of a few cents will mean millions of dollars for some speculators. A move to appropriate levels will mean millions of dollars to thousands of speculators. These circumstances have shed light on issues that have not been appropriately dealt with; taxation on income for individuals investing in physical, nonfunctional currency. Part II The Recommended Guidance Resolves Significant Issues Relevant to Many Taxpayers 2.01 Numerosity There is an ever growing population of individual speculators in physical nonfunctional currency markets; most notably the Chinese Yuan, the Vietnamese Dong, and the Iraqi Dinar. There are Internet forums where people gather to exchange information relating to the developments within the countries and the potential for appreciation of the currency's value. One such forum, don't promote other sites, lists membership of 21,973. Another site, Dinar Vets, lists 29,503 current members. While these may be the most notable sites, there are many less known sites. One of the newest that I have been made aware of is called People's Talk Radio. Since its creation in or about January 2011, it has gathered 9,472 registered members. These numbers, however, pale in comparison to what is reported by one of the Exchange houses. Ali Agha, president of a currency exchange house located in California (Dinar Trade), reported on CNBC on the 28TH of October 2009 that they had over 100,000 customers purchasing dinar. He further reported that there were approximately 1,000 orders placed per day and between 500 and 600 Million IQD sold per day at the rate of $1,060 per million. The same segment also reported that Dinar Trade had over 175,000 individual sales from the four years following their inception in 2004. The video can be viewed at the following link. (http://video.cnbc.com/gallery/?video=1311362126). I spoke with Mr. Agha on the 2ND day of May 2011 and requested an update which he was unwilling to give. However, we know that through Dinar Trade alone, over 100,000 taxpayers may be affected. I will give an example later of how this number may have grown exponentially through gifting. Upon the release of UNSC restrictions upon Iraq, the currency will either be revalued or will be allowed to float in response to markets. In either case, the release of the UNSC restrictions will act as a triggering event causing a super majority of the speculators who have purchased IQD to have tax consequences in the same year. They and their professional advisers will all need guidance at the same time. If there is no revaluation and the currency is allowed to float and respond to market pressures it may continue to appreciate significantly over time, speculation will continue to drive the price up and there is the likelihood that this will be an issue for a significant number of taxpayers for several years to come. 2.02 Significance (a) Potential Income Taking the numbers reported on the CNBC segment discussed above we see that Dinar Trade, one of the currency exchange houses, was selling at least 500 million dinar per day. Dinar Trade was established in 2004. If we assume this average daily rate for only three of the years since there inception, no sales any other year, and no sales through any other currency exchange house or bank; there would be 390 billion dinar sold to speculators. If the currency moves only $0.03, the income generated will be $11.7 billion. If there is a revaluation of the currency to a rate approximating the Iraqi dinar's former value (over $3.00), the income generated will be over $1.17 trillion. Though these numbers are significant, adding the remaining years of sales for Dinar Trade, the multiple sales through other currency exchange houses, and the sales through banks would most likely have the affect of making these numbers truly staggering. Even if there is never a revaluation, the move of the currency just a few cents is significant. (B ) Nature of Tax The core question is, “With regard to individuals who have invested in physical nonfunctional currency, will the transaction be treated as a personal transaction under Section 988(e)(2) providing for capital gains treatment for income and unreported loss OR will these transactions be excepted from “Personal Transaction” due to Section 988(e)(3) and require that all income is reported as interest income while allowing the full deduction of all losses? This issue did not arise when Kuwait reinstated its currency value. The time between the devaluation of their currency and the reinstatement was short enough that those who profited were obliged to pay the same marginal rates. Whether they were claimed as short-term capital gains or were classified as ordinary income was immaterial to the speculators. The case of the Iraqi Dinar (IQD) is much different. While some speculators have only held IQD for a few months, this currency became an investment target as soon as it devalued significantly. Based on the numbers given above, it is safe to say that the vast majority of speculators will have held at least some IQD for over 12 months. Most people who have seen fit to invest in IQD have continued to invest more over time and have a mixture of short-term and long-term holdings. Further, the difference in the amount of tax due upon a currency exchange income event involving a revaluation of the IQD would make it worth holding the currency for the necessary amount of time to qualify for long-term treatment if the income is to be treated as capital gains. This makes determining the appropriate nature of the taxes essential. Part III The Recommended Guidance Promotes Sound Tax Administration 3.01 Clarity Sound tax administration requires clarity. The code and regulations dictating treatment of gains by an individual speculating on foreign currency lack clarity. (a) Resources Available to Taxpayers Thousands of individuals have been seeking information on the taxation of their prospective investment for years. One of the earliest examples I found was a post on an Iraqi dinar investment forum dating back to 2006 listing revenue ruling 74-7 as authority that the income should be claimed as capital gains. End note 1 of the ruling explains that travelers were attempting to claim 1031 exchange treatment for their currency conversions. The ruling established that they should instead pay capital gains. I have seen this posting repeated on several forums (though listing the ruling number incorrectly). Often individuals speculating in physical currencies avail themselves of easily accessible resources provided by the Service. They have regularly gone to the Service's website themselves or relied upon those who have reported what they have found there. In almost every case, research on the Service's web site produces Pub. 525 pg. 33 which tells the reader that for personal transactions with foreign currency, capital gains treatment applies. Many others call the Service and the Service Customer Care employees quote the same information from publication 525. A variation on this information that I saw came from a gentleman who used the Service's email guidance system. The answer he received dealt with claiming his income under section 1256 with a split between long-term and short-term capital gains. Invariably, an individual contacting the Service for guidance is told to claim capital gains treatment in one form or another. The only time there is variance on the issue is when tax professionals are employed. (B ) Disagreement Among Professionals I have had the opportunity to communicate with currency speculators regularly for several months. I often hear assertions like, “I talked to my CPA and tax attorney and they both agree it will be taxed as . . . .” The last part vacillates back and forth between “ordinary income” and “capital gains.” From these communications, it appears that the world of professional advisers either 1) are not equally aware of the issues involved in currency speculation OR 2) the issues lack clarity to the extent that well studied professionals are coming to differing conclusions. After communicating with some of the professionals involved, it has become apparent that both problems exist. (1) Lack of Awareness CPAs and attorneys are both trained that appreciated capital assets receive capital gains treatment. Therefore, when asked by a currency speculator how their income should be taxed, it is easy to give an answer with complete confidence that all income associated with speculating in physical foreign currency should be taxed as capital gains. Most professionals do not feel the need for any further research on the matter. However, some professionals have done the research and still arrive at different conclusions. (2) Differing Conclusions Section 988(e)(2) plainly states that gains on disposition of foreign currency by an individual performing a personal transaction are treated as capital gains for income over $200 and any losses are unreportable. However, section 988(e)(3) seeks to narrow the definition of “personal transaction” by eliminating any transactions in which “expenses properly allocable to such transaction meet the requirements of” sections 212 or 162. For the professional who has researched, this is where the guidance is lacking. The professional community is in disagreement on how to apply the phrase, “expenses properly allocable to such transaction meet the requirements of” to this situation. Some professionals are of the opinion that according to textual reading of section 988, there must be expenses already incurred that would qualify to be deducted under section 212 or section 162. Others believe that the deductions must not only have occurred, but that the deductions must also have been claimed. Others believe that the reason for section 988(e)(3) is to capture the nature and intent of the exchange transaction (profit production vs. personal use). This last group believes that no measurable expenses need have been created and it is enough that, due to the nature of the transaction, any foreseeable expenses “could” be deducted under section 212 or section 162. Turning to the regulations for section 988 offers little assistance. Instead of offering guidance on the application of the above quoted phrase, the examples listed in the underlying regulations simply repeat the phrase, “Assume that all expenses properly allocable to these transactions would meet the requirements of section 212.” The only “expense” associated with the speculation in physical nonfunctional currency for the majority of individuals is a transportation expense which is included in purchase price of the currency. Instead of qualifying for a deduction under section 212 or 162, this expense is properly included in basis as part of the cost of acquisition. There are no investment counsel fees, clerical support fees, custodial fees, etc... which might typically be incurred by a taxpayer for the production or collection of income or for the management, conservation, or maintenance of investments. The speculators simply buy the dinar notes and hide them in a mattress (figuratively speaking). The waters become even more muddied by the fact that many speculators have received dinar, yuan, and dong as gifts and many more who have been working either as military personnel or civilian contractors in Iraq have acquired some of their dinar as currency for daily living and then have decided to keep the currency not spent to speculate on its appreciation. Therefore, for these individuals, even if there were potential expenses, they would not be allowable under section 212. Guidance is needed to determine if the Service is simply saying that if you have taken deductions for investment or business purposes you can no longer claim a “personal transaction” or if it is the Service's design to attempt to divine the “intent” of an individual's actions and allocate foreseeable expenses to the transaction whether or not incurred. If it is the Service's intent to apply the standard that a person similarly situated could foreseeably create and deduct expenses, the next question becomes, “When is this standard to be applied?” A person receiving dinar as a gift certainly has no section 212 deductions at the time of receipt. However, if the individual holds the currency for several years, it is foreseeable that a similarly situated person might be able to create deductible expenses based on an investment intent that was created sometime after the acquisition of the nonfunctional currency took place. The inverse should be considered as well. If an individual acquires a nonfunctional currency through exchange for functional currency and does so for the purpose of investment and then determines to give a portion of that currency to a charitable organization, does the fact of gifting to charity negate any previously perceived investment intent? (There will be more discussed on charitable issues later.) Taxpayers are in need of clear guidance that will make it simple to determine whether or not the “personal transaction” exception from 988 (e)(2) can be applied to individuals who have speculated on physical nonfunctional currency. 3.02 Continuity It is in the interests of sound tax administration to have continuity in the treatment of circumstances which affect a large number of taxpayers across multiple regions. Due to the lack of clarity in section 988 as applied to speculation in physical nonfunctional currency, there is the potential for multiple private letter ruling requests from every region across the country. With so many requests there is potential for disparate treatment of taxpayers with identical or similar circumstances. Further, since the letter ruling requests would come due to a triggering event (release from United Nations Security Counsel restrictions and International Monetary Fund restrictions), it is likely that many (if not most) of the letter ruling requests would be considered by different Service offices at the same time. None of the Service offices considering the letter ruling requests would have the advantage of the other offices' rulings to assist in providing a uniform response to the public. 3.03 Consistency (a) Type of Transaction It is in the interests of sound tax administration to have similar activities treated similarly across the various parts of the code that relate to them. Exchange gains and losses are typically similar to (and reported as) interest income for section 988 transactions. Exchange gains and losses under section 988 are typically realized either 1) as business units in foreign jurisdictions use the currency to operate or 2) as investment vehicles are purchased and sold (either denominated in or with reference to a nonfunctional currency). In either of these circumstances, the exchange gains and losses are ancillary to the income generation activity. This is analogous to interest earned on funds held in a US bank account because interest earnings on the cash are ancillary to the purposes for which the cash is being applied. In the instant case, however, earnings on the currency are not ancillary to other business activity. The currency is the investment. Therefore, the currency no longer reflects the nature of interest but is more analogous to securities purchased and held with the specific intent to profit on speculated appreciation thereon. In this circumstance, a country's currency becomes analogous to shares of stock in that country's value on the open market. (B ) Charitable Planning Potential inconsistencies are quite a bit more apparent when applied to charitable planning. The more I dwelt on the topic, the more I realized that to have guidance that could be applied consistently across the code, it would be necessary to address some of the issues that arise when applied to charitable planning. It may be important to note that at least ninety percent (90%) of the people I have counseled regarding currency speculation income are planning on some type of charitable gifting and a large portion of those are planning on using structured charitable gifting tools. It is important to keep the charitable gifting implications in mind because whatever guidance the Service gives in regards to taxation will most likely have an affect on treatment of charitable gifts as well. (1) Current Process Typically when a charity receives a gift of nonfunctional currency, they do not look at it either as tangible personal property or capital gains property. Following the logic of Revenue Ruling 69-63, charities view currency without numismatic value simply as cash. In the case of a gift of cash, the charity simply issues a receipt for the cash donation based on the exchange rates on the date of receipt. This seems to be an appropriate procedure that is in keeping with the Service's guidance and rulings. However, when gifting appreciated currency through charitable gifting tools, problems start to appear. To review these problems let us examine the result of each of the three ways that the nonfunctional currency may be viewed when placed in a charitable remainder trust (CRT). (2) Cash (Potential for Abuse) If the nonfunctional currency is considered to be cash by the CRT, placing the appreciated “cash” into the CRT would have the effect of qualifying the entire gift as principle and eliminating all of the gains. Therefore, any time a CRT would be required to return a portion of the original gift, the Trustee or administrator would report it as a return of principle. The potential for abuse is obvious. Example: Assume B purchases Swiss francs for $100,000 and they have now appreciated to $400,000. B sets up a CRT with a term of two years and a 45% payment each year which would leave a little over 10% for charity (including growth at the discount rate). In two years B would receive a little over $360,000 from the CRT. Almost all of this would have been improperly characterized as return of principle. This would have the effect of avoiding almost all federal and state income taxes by gifting ten percent (10%) to your favorite charity. Though it is appropriate, following the logic of Rev. Rul. 69-63, to allow a full deduction based on the cash actually going to charity, it is apparent that it is inappropriate to continue to ignore the potential income in any gift of foreign cash to a CRT, Charitable Gift Annuity (CGA), or similar planning tool. In my research I have enlisted the help of charities and charitable trust administrators as well as other professionals. One charity I spoke with would have followed what is typical among charities and treated the appreciated nonfunctional currency as a cash gift until I spoke with them about the dangers of doing so in a circumstance where the appreciation is high. After further research and eventually contacting their national support organization, this charity determined that, to avoid the potential for being accused of fraud, they would have to “list” the currency received as they would any other property and take basis into account while figuring the nature of any gains upon exchange of the “property” and thereby retain the gains. The charity was not certain, however, what the appropriate nature of the gains would be. (3) Tangible Personal Property Revenue ruling 69-63 rightly points out that currency that has numismatic value ceases to be classified as cash and becomes Tangible Personal Property with basis and value completely separated from the exchange rate of the currency. However, currency with no numismatic value retains its nature as cash and is not appropriately classified as tangible personal property. The question then remains. How will gains in the currency exchange be treated when gifted to charitable planning instruments? (4) Capital Gains If it is not appropriate to classify currency with no numismatic value as tangible personal property and continuing to treat currency as principle in a gift could lead to the non-recognition of large amounts of gains. It seems that the only appropriate place to capture the gains would be as a Capital Gains property of some sort. In order to promote sound tax administration, there must be consistency. To provide consistency there must be correlation between how appreciated cash is treated for income tax purposes and for charitable gifting purposes. Part IV The recommended guidance can be drafted in a manner that will enable taxpayers to easily understand and apply the guidance Once the Service makes a determination on the nature of the transaction and appropriate tax treatment, the results should be able to be simply stated with an example or examples on point. Part V The recommended guidance involves regulations that are outmoded, ineffective, insufficient or excessively burdensome and that should be modified, streamlined, expanded, or repealed The point of this section is dealt with in the subsection 3.01 Clarity of the Part III. The code and regulations are unclear. Further, the need for multiple letter rulings would create an undue burden on the Service to answer the questions of the nature of the tax individually. Additionally, the way charitable gifts using charitable planning tools has historically dealt with currency has now been shown to be insufficient and additional regulation must be promulgated. Historically there has not been a time where large numbers of taxpayers owned foreign currency as an investment vehicle. However, since the time of the speculators in the Kuwaiti currency, that number has been steadily growing. Now there is a need to address issues dealing with investment in physical nonfunctional currency directly and clearly. Part VI The Service can administer the recommended guidance on a uniform basis 6.01 Differences in Character of Transaction The dinar has been acquired in many ways. While many speculators have obtained dinar through a currency exchange house, many (perhaps even most) of the people who will profit from any significant move in the value of these currencies have received currency as a gift from a speculator. Others have received nonfunctional currency while working oversees and upon returning to the United States have determined to hold the currency instead of immediately exchanging it. The first speculator I became aware of had a telephone conversation with me. I learned that he gifted Iraqi dinar to at least six individuals on the day of our conversation. In my conversations with speculators, I have found that is an oft repeated scenario. In an effort to share with friends, family, and neighbors, most of the speculators I have spoken with have either already gifted currency to others or have plans to do so. In fact, on their internet boards, gifting is often discussed and speculators encourage one another to gift while the value of the currency is low to avoid gift tax consequences. For every taxpayer who has actively speculated on nonfunctional currency, there may be several more who have received currency by gift. Whether this distinction is important will depend upon the Service’s determination of the application of section 988(e)(3) with regards to the interpretation of the phrase, “expenses properly allocable to such transaction meet the requirements of” section 212 or section 162. If the Service will try to capture subjective intent, these circumstances will make that determination all the more difficult. 6.02 Potential for Disparity If the Service's interpretation of the purpose of 988(e)(3), which qualifies the definition of “personal transaction,” is to capture the intent behind the transaction, it would seem correct that those who speculated on the dinar had to pay taxes as standard section 988 ordinary income while those who received the dinar as gifts are able to claim capital gains treatment under the “personal transaction” exception found in section 988(e)(2). However, that is too simplistic. Those who hold or continue to hold currency that they received either as a gift or in the course of their work in a foreign country may develop the same investment intent as those who obtained a nonfunctional currency as an investment vehicle from the start. Conversely, one who has had investment intent may turn to charitable intent over a part of their funds. It seems inadvisable to use section 988(e)(3) in such a way as to capture the intent of the taxpayer. To do so requires taxation based on what is foreseeable or theoretical instead of what has actually occurred. To do so would require not only the ability to measure an individual's subjective intent, but to determine different appropriate times at which the intent should be measured. This attempt would lead to apparent, if not real, disparate treatment among similarly situated taxpayers. For uniform treatment of taxpayers it is essential that the Service give guidance which allows an objective measure that is applicable to all circumstances of an individual taxpayer speculating on foreign currency that may be applied regardless of any argument as to the intent of the individual based on evidentiary facts and circumstances surrounding the acquisition, reason for acquisition, length of time the currency was held, or the reason for holding the currency. 6.03 Necessity for Quantitative Measure One gentleman I communicated with, who was working in Iraq at the time, had 1,500,000 dinar in his residence in Iraq for living expenses, 20,000,000 dinar located in the United States, and 5,000,000 dinar in electronic bank accounts in two Iraqi banks. Is it appropriate for the Service to attempt to determine what his intent was behind each dinar he obtained? Evaluating intent would be impossible without some sort of quantitative measure. However, by the very nature of its use, currency is impossible to track for the purposes of devising that measure. If uniformity is sought in tax administration, it seems that section 988(e)(3) must refer to a measurable event in relation to section 212 or 162. It must be a measurable event that is easily ascertainable. Part VII The recommended guidance reduces controversy and lessens the burden on taxpayers or the Service Currently there is a schism between currency speculators as to how they will pay taxes. Some are convinced they will be required to pay taxes as ordinary income. Others are equally convinced that they will be paying capital gains rates. The one thing that most agree on is that once the money comes in, they will have to seek professional guidance to be sure. The problem, as stated initially, is that the professional community is divided in its opinions about the nature of the taxes. This will lead to one group of professionals advising their clients to pay capital gains and another group of professionals telling their clients that they must pay ordinary income. A section of each group will seek Service approval of their plans through requests for private letter rulings. Without a clear statement from the Service about how the nature of the tax is to be determined, it will have to be decided after the fact, on an individual basis, through private letter rulings, audits, litigation. This type of controversy may be avoided by appropriate guidance to taxpayers and the professional community. Part VIII Suggested Solution This recommendation for guidance has discussed three potential interpretations of the phrase in Section 988(e)(3) “expenses properly allocable to such transaction meet the requirements of” in relation to Sections 212 or 162. They are either 1) any possible, foreseeable expenses could be allocable, 2) Actual expenses incurred have been allocated (deduction claimed), or 3) Actual expenses have been incurred which could be allocated but may not have been. 8.01 Foreseeable Expenses are Allocable It is not in the interests of sound tax administration to tax someone based on what is subjective, foreseeable, or potential. It would be extremely burdensome, if not impossible, to measure what is foreseeable. Further, using this measure would require the ability to divine subjective intent and require the ability to specify a period in time for which the intent must be measured. The arbitrary nature of any such attempt would lead to much controversy and create a large burden on the Service and on the taxpayer. 8.02 Actual Expenses have been Allocated Given the need for clarity, consistency, and uniformity, it seems that the most appropriate course would be to interpret section 988 (e)(3) as meaning that if there have been deductions taken under section 212 or section 162 relating to a currency transaction on an individual's tax return(s) either in that year or prior years, then the individual is barred from claiming a “Personal Transaction” as defined in section 988(e)(2). Otherwise, an individual making an exchange of nonfunctional currency has a personal transaction under section 988(e)(2) and is allowed capital gains treatment for any gains above $200 and is disallowed any losses. This interpretation is measurable, simple to understand, consistent with the application of the code, may be uniformly applied, and would take very minimal drafting of supporting regulations. However, this solution would lead to the potential for a currency speculator who has taken deductions to simply amend a return or returns to remove those deductions and obtain more favorable treatment of their gains. This retrospective ability to manipulate returns to gain the greatest advantage is not within the realm of sound tax administration policy. 8.03 Actual Expenses have been incurred, may be allocable, and qualify for deduction under section 212 or 162 A way to keep the good points of the above solution without having the problem of amending returns based on comparative value (deduction vs. different tax nature) would be to interpret the language as meaning that any expenses actually incurred are of such nature that a deduction under section 212 or 162 could be obtained by the individual due to the nature of the expense and the nature of the transaction. Following this methodology, a deduction applied for and allowed is evidence that section 988(e)(3) applies and excepts the transaction from capital gains treatment. Any amendment after the fact would not change the fact of the deduction being available (whether or not taken). This solution seems to be in keeping with both the spirit and letter of the law and supporting regulations. It would still have the advantages of being objectively measurable and have uniform application just as though the solution in the above subsection (8.02) were to be used. 8.04 Consistent Application to Charitable Planning To avoid abuses of the tax code (whether intentional or unintentional), instructions must be given that it is inappropriate for stewards of charitable planning instruments to simply give a receipt for a cash donation when receiving nonfunctional currency. There is potential for profit built into any gift of nonfunctional currency and it is essential that the charitable entity to maintain the nature of the underlying transaction in accounting for any profit realized. If the disposition of the nonfunctional currency qualifies as a “Personal Transaction” under 988(e)(2), the currency is to be viewed as a capital gains property which would apply both for purposes of capturing the nature of income given to the lifetime beneficiary of a planning instrument as well as supporting the nature of any deduction allowable for a charitable gift. This would allow for the gift passing to the charity to maintain the nature of a cash gift and be completely deductible as historically viewed by the Service while still preserving gains for any significant appreciation of the cash that the Grantor gifts to a charitable remainder trust, charitable gift annuity, or other similar planning instrument. 8.05 Conclusion Using the simple measurable solutions laid out in subsections 8.03 and 8.04 of this document would allow simple drafting of regulations, would make the application of 988(e)(3) clear, would be consistent across the code, could be uniformly applied and would minimize the burden both on the Service and on the taxpayer. It is the only solution that I see that meets the requirements of sound tax administration while maintaining the law as written.
  11. Most of you who know my posts know that I have been preaching "ordinary income" under section 988 for a long time. My analysis of the law can be found here: With that said, I am going to shock some of you. I was convinced by another professional to submit a request to the iRS to be placed on the "Guidance Priority List" for 2011-1012 tax year. When drafting that request I did what any good attorney would do and placed the facts in the light most favorable to his/her client (or interests). In other words, I argued for capital gains treatment. I have attached the document for any who wish to read it. Best of Blessings, Mark P.S. I will also create a new post and paste the language of the document into it (if it will give me the space to do so). Recommendation for Guidance Priority List.pdf
  12. This post is now outdated. I have done significant amounts of research as well as enlisting the aid of others to research as well. This research points out deficiencies in the code and regulations and was part of what went into my request for guidance recently submitted to the IRS. Above I mention how charities currently deal with gifts of foreign cash. However, upon further research it was found that there is no basis in the code for the way they handle these gifts. They "should" be looking at basis. There is no authority to support their current position. The current way they deal with gifts of foreign currency (without respect to basis) in the circumstances of a Charitable Gift Annuity, a Charitable Remainder Trust, or similar charitable tool can lead to what the IRS would refer to as "abusive" uses of the code. (These are alluded to in the initial post.) Upon deciding that you have "abused" the code, the IRS is likely to recharacterize your transaction to charge more taxes, penalties and interest and then decide if they should prosecute you criminally or just hit you with additional penalties for your "fraud." (Sounds yucky!!) You should still (in my opinion) be able to get a full deduction for your gifts to charity. However, you need to be careful how you do it. If any of you are interested, I'll attach the request I sent to the IRS. Best of Blessings, Mark Recommendation for Guidance Priority List.pdf
  13. You are most welcome. However, this post is outdated now by continued research and better understanding. Look at my next post. Blessings, Mark
  14. I have been away from any forum for quit a while now, but I was asked for help on this so I thought I'd post what I found. I was emailed a copy of the Forex.com email that went out about how the Dodd-Frank Wall Street Reform and Consumer Protection Act makes trading in precious metals and currency illegal as of 15 July unless you are an accredited investor. I was asked to look into it, so I did. I did not go through everything on the forum to see if some similar information is posted. If it is I apologize. I have briefly reviewed the text of section 742 of the bill referred to and the text of the Commodity Exchange Act, which it amends. While I am not well versed in this area of law, it appears to me that the jurisdiction of this law is for the “contract of sale of a commodity for future delivery (or an option on such a contract)” (7 USC 2(c )(2)(B )(i)). The words to focus on for us are “for future delivery.” We are making a contract “for immediate delivery.” This deals with forex markets and does not apply to us. (At least that is how I read it.) Not only will we be able to exchange as accredited investors with sufficient funds following an RV, but we should be able to buy and sell the physical currency for “immediate” delivery now and in the future regardless of our status as accredited investors. I can't afford to spend any more time on it right now. I hope this is helpful. Best of Blessings, Mark
  15. I don't have a form. Typically to contribute assets to a corporation, you would use a corporate ledger. The ledger should show the assets contributed, the date, your cost basis in the assets (what you paid for them), and the assets current value. If you are making the contribution in exchange for stock, then it gets a little more involved but not much. Best of Blessings, Mark
  16. What a wonderful argument to make. I am not nearly as conversant in the English languge as you. I had no idea this phrasing could be made into a legal issue. Every tax attorney should consult a retired English teacher. Before I get into what I originally planned to post in response, I'd like to analyze your post just a little and take it further. Accepting what you have said about the phrase, "to the extent that" as truth, it actually seems that it is the more correct of the two phrases you present. If the IRS chose to say, "any transaction which includes expenses properly allocable ...," it would limit the scope of the transactions that the law would affect to those that actually "include" the expenses. I believe (as I will discuss below) that the IRS intended to include transactions to the greatest extent possible. If there were ever an expense associated with the transaction, using the underlying transaction as the measuring stick, would that expense be deductible under either section 212 or 162? If the answer is yes (again, based on the underlying transaction as the measuring instrument) then the underlying transaction is excepted from being called a "Personal Transaction." If I might take a little bit of artistic/legal license with what you have provided, perhaps I can make my point more clearly. I will begin with the technically correct, "to the farthest range" and change it to read, "in the broadest understanding." Then I will rearrange the sentence to be able to accept the phrase and add my own explanatory embellishments. Therefore, what once read -- "except that such term shall not include any transaction to the extent that expenses properly allocable to such transaction meet the requirement of --" will now read "except that such term shall not include any transaction where expenses in the broadest understanding (whether or not incurred) that would be properly allocable to such transaction either do or would meet the requirement of --" I know I took it a bit far, but it is my belief that is what the IRS intended. Now I'll get to the answer I had originally intended to use. This answer may be a bit of overkill. However, it deals with the broader question of, "I don't think I had any expenses allocable to the transaction. Doesn't that mean it's capital gains for me?" The central issue isn't set on whether or not you deducted or even if you can deduct deduct a single expense like the transportation costs. The real issue is intent. The law is written to show intent. (The following is not meant to be authoritative by any stretch of the imagination and still leaves lots of "wiggle room" to work with if you have the inclination. I will simply be stating what my research and experience tells me the IRS position will be. The IRS position may or may not stand up when challenged at law.) To support this I will first refer you to the Vernon K. Jacobs article to which I make reference in my initial posting on this topic. "The general rule with regard to the U.S. tax treatment of gains or losses from exchanging U.S. currency for non U.S. currency (and back) is that the gain or loss on the currency exchange will now be taxed the same as the underlying transaction." (Paragraph one at the following link:) http://www.maximadvisors.com/knowledge-library/US-Taxation-Foreign-Currency-Gains-Losses.html?q=knowledge-library/international-tax-planning/US-Taxation-Foreign-Currency-Gains-Losses If the underlying transaction is a gift it would receive different treatment then if the underlying transaction is obviously an investment. The language in section 988(e)(3) should be construed in this light. It is written to capture the nature/intent of the underlying transaction. Therefore, 988(e)(3) should not be thought of attempting to capture or exclude specific expenses of the transaction but generally construed so that if the nature of the transaction is such that if there were any "expenses properly allocable to such transaction," they would meet the requirements of section 212 or 162. Thereby you capture all transactions that are investment in nature (section 212) or business in nature (section 162). The IRS demonstrates its intent to take the above position in examples they give in the regulations drafted supporting section 988. (The following referenced regulations can be found here:) http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A%2C_Sec._1.988-1 (Though this is not the question at hand I will share this because it comes up a lot.) The regulations show that the IRS views simply exchanging currency as a section 988 transaction whether by an individual or corporation. If you will look at examples provided in 1.988-1(a)(6) you will find that a corporation simply exchanging to foreign currency and disposing of that currency is classified as a "Section 988 Transaction." (now back to the question at hand) There is a good example from the regulations demonstrating that the IRS views an individual using foreign currency as in investment as ordinary income and not just being a "Personal Transaction". You will note that no specific mention is made of any section 212 expense or section 162 expense. However, the intent of the transaction is clear. It is found in regulation 1.988-1(a)(11). The example is given of a U.S. individual who used 100,000 USD to get Swiss Francs which have appreciated in value relative to the dollar and are now worth $400,000. To avoid the tax consequences of ordinary income, instead of exchanging the currency the individual (B ) contributed the Francs to B's own corporation and then sold the stock in the corporation for the $400,000. B tried to get away with claiming capital gains treatment for selling stock. The IRS came in and reclassified the stock sale as ordinary income because all of the value of the sale was based on the underlying section 988 transaction. (When you attempt to use a series of transactions to get out of a particular tax ramification the IRS refers to it as a "step transaction" and they will remove all of the middle steps. It's one of those, "If it looks like a duck and walks like a duck . . ." sort of things.) To summarize - specific issues dealing with section 212 and whether it would apply to a particular expense is (in my opinion) not going to matter. The issue is whether the underlying transaction is of an investment nature and therefore, any expenses (whether or not realized) would generally be deductible under section 212. (Of course I realize that I have not shown any legal precedent that settles the matter and I am not willing to pay for the legal research on this topic at this time to see if there is any.) Though many individual's questions have given me pause for thought, I always come back to the belief that the IRS is looking for the intent of the underlying transaction. Sorry if that got too long winded. I attempted to use your post to deal with a question that often comes up. I hope it will be helpful to some. Best of Blessings, Mark
  17. I did finally get a copy of the trust and opinion letters to review. I started a new topic which can be found here: Best of Blessings, Mark
  18. Many of you know that I already posted my thoughts in relation to the IRREVOCABLE, NON-GRANTOR, COMPLEX, DISCRETIONARY, SPENDTHRIFT TRUST on another thread I started. (A copy of that thread can be found re-posted here: ) Recently I was actually given a copy of the trust (minus page 8) and some other materials to review. I have completed as much review of it as I feel is necessary (and as much as I can afford the unpaid time for) and wanted to bring you the results. First I will list some questions that I have received and answer them. Following I'll include some additional thoughts. (Boring Legal Stuff) I must remind any readers that although I am an attorney and my knowledge and experience is used in the creation of my viewpoints listed below, this is not provided to you as a "legal opinion" upon which you can rely. We have no attorney/client relationship to which I am bound or upon which you may rely. See my profile for an abbreviated disclaimer. First allow me to share some background information that was passed along by sources on the forums. I have not vetted the information, but I have received the same (with minor differences) from a couple of different sources and now I pass it along to you exactly as one source sent it to me in email: Background: this Irrevocable, Non-Grantor, Complex, Discretionary, Spendthrift Trust was supposedly created by Austin Wakeman Scott who was a law teacher at Harvard Law School. He gave the trust format to his student, Robert Benson, who later practiced law in Texas & New York. (Great story but can't verify this since Scott is deceased). Jim Blakeman searched for four years to find a trust attorney who could create a trust similar to an attorney's "escrow account" which does not hold "EQUITABLE TITLE" and any funds held there are TAX DEFERRED until they leave the trust account. Also he was looking for "bullet proof" asset protection Jim paid $50K for this trust but now offers it through a handful of sales agents for $5K. AUDIO: http://www.byoaudio.com/play/WsfDGnVG <http://www.byoaudio.com/play/WsfDGnVG> 2/24/11 TRUST Q & A with Lynn & Jim 1 hr. 34 min. Following are some questions that I have been asked and my responses in red. Trust Questions: 1. Is the copyright on the Trust Main pages valid? There is no name following the words Copyright C 1999. At page top it reads " Master's Trust Copyright Trust Format. Registration Number: Serial Number; 7011470". When I did an online search at the copyright office, nothing came up. In the LEGAL OPINIONS section Four, there is a reference at the beginning for " Trust #: TX-1-Copyrighted Spendthrift Trusts. My copyright search for this came up with nothing. Question: Is this a NON-VALID Copyright just to scare people off? Can someone actually copyright the words in a trust document? Jim Blakeman, who sells this trust, said the copyright is really for the form (binder & contents) so he can speak about the subject & trust contents in public without getting nailed for giving financial advice without a license. You can copyright the book or binder that is the expression of ideas. Also, you do not have to file with the copyright office to have copyright protections. You don’t even need to put “copyright” on the document to be able to have protections. However, without the notice of copyright it is more difficult to assert your claims against a violator. If it was filed, there could be greater protections then not filed, but simply not filing does not invalidate the copyright. 2. If the Trust agreement states that the Trustee can utilize Trust assets (house , car, etc) then does that make it so? Or is there a chance that a court might consider it "self-dealing" and "substance over form”? This is one of the biggest concerns that I have. My thought is that it will be “self-dealing.” It is one thing to get something for the beneficiaries and then have incidental use of it. It is entirely something else to get something for yourself that the beneficiary never gets to enjoy and claim that it is really for the beneficiary so you can avoid taxes and criminal penalties. For instance, the Trustee of a Special Needs Trust might purchase a car for a beneficiary and use it for someone to drive an incapacitated beneficiary around. That Trustee may have incidental use of said vehicle, but if the Trustee starts using it as an every day driver, the IRS is going to say 1) self-dealing in violation of fiduciary responsibility 2) Waste of assets in violation of fiduciary duty and 3) the reasonable rental value of said vehicle is income to the Trustee. One of my wife’s friends (I guess my friend too) is a criminal investigator with the IRS. She would tear apart anyone enjoying the assets of the trust to this extent. 3. This is a NON-GRANTOR Trust. If the SETTLOR creates and FUNDS the Trust with $10.00, appoints the COMPLIANT OVERSEER & TRUSTEE and then walks away, will he/she never have any further liability or responsibility ever in the future as Jim says? That is correct. However, the settlor in their structure is a non-related third party. This is another problem. They anticipate that you will add assets to the trust and that you will also be the Trustee. You become a settlor/grantor as soon as you add assets to the trust. Still as a grantor you have no continuing liability in this particular trust. It is as the Trustee that you may develop liability. 4. The "Legal Opinion" letters (really just endorsements) included are from people who are no longer alive. Robert Benson, the attorney who created the trust is deceased as is Judge Boring. The IRS agent supposedly is still around but haven't found him in the US. I did find his name pop up on a search in New Zealand. Jim Blakman is apparently working on supplying new legal opinion letters from a Trust Attorney currently in practice. Haven't received them yet as promised. I agree that the Opinion Letters do seem more like endorsements. It is also interesting that both the Attorney opinion and the former IRS agent opinion both refer to the trust as “our” . . . trust. The fact that they have all disappeared or have passed on is troubling. Let us assume for a moment that the attorney and former IRS agent who wrote their opinions of the letter did so as qualified, non-biased third parties. I still don’t believe the opinion letters are sufficient. About all they do is say, “This is a trust that has the following provisions.” The question is not whether or not the trust is a legal trust or even a good trust. The question is whether or not the trust will do what they are claiming it will do and they are selling it for. The opinion letters only address one of the claims, deferment of capital gains. (I address the capital gains deferment in the next question.) The opinion letters do nothing to address the self-dealing issues. The opinions do not address whether or not the assets can be transferred to another trust with different beneficiaries at all (much less tax free). I read the trust (minus page 8) and could give a similar opinion letter. However, even if I gave the exact same opinion letter, I’d still disagree with what the “Hayseed” group is claiming that you can do with the trust. Let me give you an example. A trust is a tool that is fashioned to perform a specific job. Let’s say, for instance, that you hand me a hammer and ask me to give you an opinion on whether or not it is a valid tool that will do what hammers are supposed to do. I could write you a letter about how this tool is properly designed for pounding in and removing nails. What the “Hayseed” group is doing is saying that the tool can be used to remove nails, screws, and bolts. My opinion letter didn’t say that. The tool is not designed for that. Yet, they are claiming it and attempting to use the opinion letter to lend credibility to their claims. 5. Will "Extraordinary Gains" like the sale of Iraqi Dinar really qualify for TAX DEFERMENT according to IRS Section 643 as referred to in the trust? It suggests in plain English that it does at the Cornell University site: http://iqd.me/l/irc643 <http://iqd.me/l/irc643> . Jim says he's been operating out of this trust for 14 years and even after 3 audits he has never had a problem! “Extraordinary Gains” is nowhere to be found in IRC 643. This is another area that kills the use of this trust for its intended purpose. The two areas where a deferment of tax can occur by allocating gains to corpus are: 643(a ) (3 ) Capital Gains and Losses AND 643(a ) (4 ) Extraordinary Dividends and Taxable Stock Dividends These two sections both allow allocation to corpus which defers taxes. However, subsection 4 does not apply to the trust we are talking about. Subsection 4 (Extraordinary Dividends) only applies to Simple Trusts (not complex trusts) where income is distributed annually. That leaves us to look at (a ) (3 ) Capital Gains and Losses. This is where things get really sticky. While gains and losses on the sale of a capital asset may be allocated (in good faith) to the corpus of the trust and thereby defer taxes, it is not settled that income from exchanging dinar will be viewed by the internal revenue service as a capital gain. Gains on exchanges of foreign currency are controlled by Section 988 of the Internal Revenue Code. The general rule for physical currency (not contracts for currency) is that the gains are treated as interest income which is classified and taxed as ordinary income (not capital gains). There is a narrowly defined exception through which some individuals will be able to claim capital gains treatment for a “Personal Transaction.” However, even an individual who has purchased dinar as an investment will be hard pressed to claim “Personal Transaction” capital gains treatment under section 988. (For more information on individual tax treatment, see the following link which is a re-post of what I have produced before: ) I see NO WAY at all for an entity such as a trust to claim capital gains on the exchange of dinar. Under section 988, I believe it will be ordinary income and therefore 643 (a ) (3 ) will not apply. The taxes can not be deferred. Now some other thoughts I had in relation to this trust that I was not asked about. I was really expecting more. There is nothing special in this trust (unless it was on page 8 that I am missing) that you wouldn't find in any other well drafted irrevocable trust. The provisions are rather standard. It is simply a revocable trust, that is fully discretionary, that has spendthrift provisions. I'm telling you, that is fairly standard for some attorneys. Most will have less discretionary language than this, but making it fully discretionary is certainly not uncommon. There is actually quite a bit missing from this trust that I am used to seeing in a well drafted irrevocable trust. To give you a general idea, this trust, minus signature pages, is about 10 pages long. The typical, run of the mill, Irrevocable Life Insurance Trusts I am used to seeing come out around seventy pages. It is true that length does not equal quality, but I use this as an illustration to show the amount of information that I am used to seeing that is missing in the "Hayseed" trust. (I don't want to take the time to go through provision by provision for 60 pages worth of trust information.) The include a provision that allows the Compliance Overseer to remove and add beneficiaries without restriction (except for the Grantor or the Compliance Overseer). This constitutes the ability to affect beneficial enjoyment and as such is an "Incident of Ownership." It most likely causes the value of the trust assets to be included in the Compliance Overseer's estate for estate tax purposes. There is not enough in the trust to make a lot more comment. It is really pretty basically just an irrevocable trust where the Trustee has full discretion to make (or not make) distributions - oh and it has spendthrift provisions (like every other irrevocable trust drafted in the US today). So what makes it so special? As far as I can tell - nothing. In fact, I think you could do much better. The only thing special I see from the "Hayseed" group are its claims which, as far as I can tell, remain unsubstantiated. Sure you can allocate capital gains to corpus instead of income. However, that does not mean you, as Trustee get to use and enjoy the assets of the trust. When you place the assets into this trust, you have given them away to the beneficiaries of the trust and have a fiduciary responsibility to maintain them and grow them (see the prudent investors act) for the beneficiaries. Using the assets the way that the Hayseed group suggests goes way beyond simple self-dealing and, in my opinion, could have criminal consequences (embezzlement & theft). At the very least, if the beneficiaries ever found that you were using their assets for yourself, they could easily win a civil suit against you, have you removed as Trustee, and levy a judgment against you that you would have to pay back to the trust. My suggestion is see an attorney and CPA post RV and figure out how to minimize taxes and achieve your goals without going to jail. Best of Blessings, Mark
  19. Chaser51 - I do share your concerns. I am cognizant of our freedoms being stripped away systematically over time. I am aware that the Government is consistently convincing people to give up freedoms for supposed security. I hate it and do my part to work against it. However, I am attempting to still work through the political process and work within the system instead of working in what I would consider to be open rebellion to the system that is doomed to eventual failure. If we ever get to that point, it will not be the tax courts I am worried about.... I will continue to try to fight for freedoms through the processes that don't expose my family to the possibility of losing the support, guidance, love, and companionship of their father and husband. If the scales should ever tilt far enough toward the need to fight for freedom, I'm sure the Lord will direct me and prepare my family. That time has not yet arrived. I am well aware of what is going on. I will not be the frog boiled in the pot of socialism one degree at at time, but I will also not throw myself into a battle with little chance of real success and large amounts of potential stress and peril for my family unless and until God himself directs me through his Holy Spirit to do so. Best of Blessings, Mark
  20. When I was going through my undergraduate degree, I wrote a paper for my tax law class about how the US Income Tax is unconstitutional. I still believe it may be, but that really doesn't matter because the Courts don't think so. I am not willing to place my own peace and freedom or the peace and security on the line to fight a battle with the Courts over taxes. Following is a website that tracks cases of high profile tax protesters through their eventual incarceration. Enjoy: http://www.quatloos.com/Q-Forum/viewforum.php?f=30&sid=14d42191ad0f087964a016e8b3d721ab Best of Blessings, Mark
  21. Wish it were true, but I can't find anything to support the rumor except for a lot of people repeating the same rumor. I don't believe their is any basis in fact at this point. Best of Blessings, Mark
  22. I have not personally done it. I do have resources for doing it. Look at Fortress Family Office Group. I'm sure you can locate them on Google. They are in Tampa. Please do not actually try to take their time until post RV when you have money to pay them. I don't want my relationship with them hurt. Thanks. Best of Blessings, Mark
  23. Unfortunately, I can not be certain. Though I have an idea of this area, that is really a question for a financial adviser of maybe even a Certified Financial Planner. That's why it's best to have a team. My understanding of 72(t) is that it deals with annuitization of normal IRA to get income stream. I know that 72(t) as applied to a standard IRA will allow avoidance of the 10% penalty but will not avoid taxes. I know a 72(t) plan once started must be continued if the IRA is converted to a Roth IRA. However, I don't know if 72(t) applies to a Roth IRA directly or not. Wish I could be of more help. Best of Blessings, Mark
  24. Look at www.NAFEP.com The are an IRA company set up to hold hard assets. They will hold your dinar in their gold vaults.
  25. Non-functional currency is decided by definition. It is basically anything that is not the functional currency of the country you are in. Functional currency is defined a little differently by different groups, but they all are similar. The best one that I found follows: Currency of the country (called the 'primary environment' ) in which a firm a conducts its business activities and generates most or all of its income and expenses. It may or may not be the currency in which it presents its financial statements, which is called reporting currency or presentation currency. For U.S. firms operating in foreign countries, the reporting requirements are governed by the rules of the Financial Accounting Standards Board, particularly statements 8 and 52 (FASB No. 8 and FASB No. 52). Read more: http://www.investorwords.com/7319/functional_currency.html#ixzz1FMfKrFw3 (If you are interested in really digging into this you can look at sections 985 and 989 of the internal revenue code which teaches a Qualified Business Unit (QBU)to determine which currency is their functional currency.) However, for us it is very simple. You are an individual. You are a US citizen. Your functional currency is US currency. ALL OTHER CURRENCIES ARE "non"functional currencies to you under the code. If you had a QBU operating in Iraq, it would be likely that the IQD would be the functional currency for that QBU. Hope that helps. Best of Blessings, Mark
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