GTU and Taxes reconsidered

[BearBones]

http://news.morningstar.com/articlenet/ ... ?id=543502

This article from Morningstar really has me confused about GTU and other similar funds. I was under the impression that, as a PFIC, GTU had tax advantages.

This paragraph, in particular, has me confused. Is it that by reclassifying as a QEF by filing FORM 8621 long term capital gains rates apply, and there is no "undistributed income?"

"Also, the federal government discourages U.S. citizens from investing in non-U.S.-based mutual funds and other pooled investment vehicles, classifying them as Passive Foreign Investment Companies, or PFICs, and applying a prohibitive capital gains tax structure equal to the highest regular income tax rate (currently 35%) regardless of how long the investment is held. That's much higher than the current long-term capital gains rate for U.S.-based funds of 15% for taxpayers in higher brackets. To top it off, PFIC investors also might have to pay interest charges on taxes deferred during the holding period of the investment. Another option available to investors is to reclassify a PFIC as a qualified electing fund, or QEF, which might reduce the tax rate but adds undistributed income to tax calculations."

[steve]

My understanding is if you make QEF election:
The GTU annual pfic statement has all the info you need to fill out tax form 8621. It has always been nothing but zeros and all this means is if GTU pays a dividend you list it and pay tax on it and if it has undistributed income you list it and pay tax on it, which would increase your tax basis, really no big deal. If held in a US brokage like Vanguard etc. there is nothing to worry about. Just take the few minutes to fill out the annual paperwork and get the advantage that it will be taxed at your regular long term rate if held for a year and not the collectable rate. This is if you hold it in a taxable account like I do. To me the only disadvantage is you can't e file.

[rickb]

To me the only disadvantage is you can't e file.

I believe you can e-file.  TurboTax doesn't know about this form (don't know about the others), so perhaps you mean you can't e-file if you're using TurboTax.

[steve]

To me the only disadvantage is you can't e file.

I believe you can e-file.  TurboTax doesn't know about this form (don't know about the others), so perhaps you mean you can't e-file if you're using TurboTax.

A few years ago when I called the IRS they told me to mail it in.
In the past I think that you could not e file but now you can so I stand corrected , however with the tax software that I use I felt it was limited.
Professional tax prepares can upload pdf forms
Taxact has the form 8621 and has some additional statement that you can fill out, but when I filled everything out it did not look as good to me as my own statement when I do it myself and I could not get it the to look the way I wanted, also I could not attach the annual PFIC statement. The annual statement from GTU probably does not really need to be attached as all this information goes on form 8621 but in the past I was advised that it couldn’t hurt to just include it. It clearly shows why there are all zeros so there would not be any doubt that you filled out the form correctly.
This was their reply when I contacted them:
Dear TaxACT® Customer:
Form 8621 will allow you to enter certain attachments or statements. You would not be able to upload a PDF document though. You would need to type the information. If you would prefer to attach a PDF document, you would need to mail your return. Provided below are instructions to view the Form 8621 statement worksheet.
In the TaxACT program, the Form 8621 is a fillable form.
Start your TaxACT Desktop program and click on the Forms icon in the toolbar OR click Return from the drop-down menu bar, place the cursor over Review and then click Forms
Expand the Federal view and then expand the Forms and Schedules view
Scroll down and double click on Form 8621 - Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
Enter the information directly on the form, once you have created Form 8621 you can access the statement worksheet.
Expand the Federal view in the left hand column of the program and then expand the Worksheets view
Scroll down and double click on Form 8621 Statements - Supplement for Form 8621

I just mailed my tax return in and end of story
Maybe next year I will e file.

[dualstow]

In the end, my accounted discarded all the QEF/PIFC stuff I sent him. It's my first year to report GTU or any gold ETF for that matter. I hope he knows what he's doing.

Next year, I think I'll print everything Steve wrote and send it to him. I did a little of that this year, but to no avail. We'll see what happens.

[steve]

In the end, my accounted discarded all the QEF/PIFC stuff I sent him. It's my first year to report GTU or any gold ETF for that matter. I hope he knows what he's doing.

Next year, I think I'll print everything Steve wrote and send it to him. I did a little of that this year, but to no avail. We'll see what happens.

If you hold in an IRA as far as I know you do not have to fill out any forms and your accountant maybe doing your taxes correctly, if you hold GTU in a taxable account I think he is making a mistake. If I were you I would find out before the tax file deadline April 17 2012

[dualstow]

It's all in a taxable account. While he's a very smart guy, I have to wonder if he's had to deal with gold ETFs before.
The only think I can think of is that my sitch may be different from yours because I hold less than 100K worth of GTU.
I've already shown him excerpts of this forum and we've already filed, so I'll report back next year.

[steve]

It's all in a taxable account. While he's a very smart guy, I have to wonder if he's had to deal with gold ETFs before.
The only think I can think of is that my sitch may be different from yours because I hold less than 100K worth of GTU.
I've already shown him excerpts of this forum and we've already filed, so I'll report back next year.

My opinion I think he is making a mistake and so are you if you let it go. I would correct it before the deadline. Trying to file a retroactive QEF election could be much bigger hassle. I am only trying to help. The amount you hold is irrelevant. The amount would only be relevant if you held it in a foreign brokerage account. If in a US brokerage like Vanguard etc your ok. My opinion you still need the 8621 with proper election. Before the deadline you maybe able to just send it with a note saying that you forgot to include it.  It has no bearing on any taxes you presently owe or refund due. If I were you I would call the IRS and ask them how handle this situation. GTU is not a regular gold ETF it is a  Canadian closed end mutual fund that trades on the American stock exchange.

[dualstow]

Ok, thank you, Steve.
I appreciate it.

[dualstow]

I never did revisit this thread in 2013 but I should have. My accountant said that I have to make an election stating that I am going to sell in the following year (when I finally decide to sell. Not anytime soon). And that is a hassle. I wish he had just listened to me quoting Steve. Instead he told me that I shouldn't buy an instrument that I don't understand, as if this was my fault, when in fact I had done all the necessary research.

Now my plan is to keep buying coins and sell GTU at a small loss if the price ever comes back up.

[rickb]

I never did revisit this thread in 2013 but I should have. My accountant said that I have to make an election stating that I am going to sell in the following year (when I finally decide to sell. Not anytime soon). And that is a hassle. I wish he had just listened to me quoting Steve. Instead he told me that I shouldn't buy an instrument that I don't understand, as if this was my fault, when in fact I had done all the necessary research.

Now my plan is to keep buying coins and sell GTU at a small loss if the price ever comes back up.

Sounds like you should find a new accountant.  I'm not sure, but I suspect you can file an amended return including the 8621 form.

[steve]

I never did revisit this thread in 2013 but I should have. My accountant said that I have to make an election stating that I am going to sell in the following year (when I finally decide to sell. Not anytime soon). And that is a hassle. I wish he had just listened to me quoting Steve. Instead he told me that I shouldn't buy an instrument that I don't understand, as if this was my fault, when in fact I had done all the necessary research.

Now my plan is to keep buying coins and sell GTU at a small loss if the price ever comes back up.

You maybe able to file a retroactive QEF election
If I were you I would call the IRS and ask them how handle this situation. Blame your accountant,  tell them the story and tell them that your accountant did not file as you requested him too. Good luck

[dualstow]

Thanks guys. For the record, he's otherwise very good and has done a fantastic job with everything else, whether I judge him on his own or vs past accountants. He was just too stubborn to listen about the gold.

I'll fix it. Thanks for the advice, guys.

[AdamA]

Thanks guys. For the record, he's otherwise very good and has done a fantastic job with everything else, whether I judge him on his own or vs past accountants. He was just too stubborn to listen about the gold.

I'll fix it. Thanks for the advice, guys.

My accountant wasn't sure about GTU in this regard either.  I think it's just something they don't deal with that often.