Gyroscopic Investing

This is from the December 2010 information packet for GTU.  From what I can tell, the worst that can happen to you, tax wise, is that you end up paying 28% instead of 15%.  Is this correct?  Would there be any circumstance in which you'd have to pay more than 28% on capital gains from GTU...like if you goof up the form 8621 or something?

GoldTrust has been, and expects to continue to be a passive foreign investment company (“PFIC”?) for United States federal income tax purposes. Under the PFIC rules, the United States federal income tax treatment of the Units is very complex and, in certain cases, uncertain or potentially unfavorable to Unitholders who are United States Persons as defined under “Certain United States Federal Income Tax Considerations”? in the annual report of GoldTrust filed on Form 40-F with the United
States Securities and Exchange Commission (“United States Unitholders”?).


Under current law, a non-corporate United States Unitholder who has in effect a valid election to treat GoldTrust as a qualified electing fund (“QEF”?) should be eligible for the 15% maximum United States federal income tax rate on a sale or other taxable disposition of GoldTrust Units, if such Units have been held for more than one year at the time of sale or other taxable disposition. Gain from the disposition of collectibles, such as gold, however, is currently subject to a maximum United States federal income tax rate of 28%. The IRS has authority to issue Treasury regulations applying the 28% tax rate to gain from the sale by a non-corporate United States Unitholder of an interest in a PFIC with respect to which a QEF election is in effect. Although no such Treasury regulations have been issued to date, there can be no assurance as to whether, when or with what effective date any such Treasury regulations may be issued, or whether any such Treasury regulations would subject long-term capital gains recognized by a United States shareholder that has made a QEF election on a disposition of GoldTrust Units to the 28% rate.  United States Unitholders should be aware that if they purchase units and make a QEF election, the IRS may issue regulations or other guidance, possibly on a retroactive basis, which would apply the higher 28%...

I think the worst case would be the lesser of your marginal tax rate and 28%.

GTU is not an ETF, It is a closed end mutual fund. If the law changes and the tax advantages are lost so be it. Untill then I am not going to worry about it.

IRS is currently revising Form 8621 and designing new Form 8938 to reflect the new reporting requirements. Notice 2011-55 .
On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act of 2010 (the Act). The Act amends the Internal Revenue Code by adding a new § 1298(f). Section 1298(f) requires United States persons who are shareholders of a passive foreign investment company (PFIC) to file an annual report containing such information as the Secretary may require. Section 1298(f) is effective on the date of enactment.
The Internal Revenue Service is developing further guidance regarding the reporting obligations under § 1298(f). In the meantime, persons that were required to file Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund, prior to the enactment of § 1298(f) must continue to file Form 8621 as provided in the Instructions to such form (e.g., upon disposition of stock of a PFIC, or with respect to a qualified electing fund under § 1293). Shareholders of a PFIC that were not otherwise required to file Form 8621 annually prior to March 18, 2010, will not be required to file an annual report as a result of the addition of § 1298(f) for taxable years beginning before March 18, 2010.
The principal author of this notice is Kristine A. Crabtree of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Susan E. Massey at (202) 622-3840 (not a toll-free call).
I underlined the part that I thought was relevant

Recent IRS released a revised draft of Form 8938, Statement of Specified Foreign Financial Assets
I am not sure about this but as far as I can see from this form:
US taxable investors holding GTU that values more than $50k would not have to list it on the form but
may have to file this form and put a check in the box in section 4 stating that form 8621 was filed and the number of forms.(which would be 1) I am not a tax advisor but if there are any reading this I would like your opinion on this matter. The question that I have not found the answer to yet is a Foreign Mutual fund listed on the American Stock exchange considered a Specified Foreign Financial Assets. Hopefully this question will be answered soon.
http://www.irs.gov/pub/irs-dft/f8938--dft.pdf

Draft instruction posted
http://www.irs.gov/pub/irs-dft/i8938--dft.pdf

Is short-term trading of GTU still taxed up to 28%?

My email to IRS
To the IRS
regarding
http://www.irs.gov/pub/irs-dft/i8938--dft.pdf

I have a question that no one seems to be able to answer.
Would a closed end Canadian mutual fund that trades on the NYSE be considered a foreign asset?  It is held in a US brokerage account like Vanguard by a US citizen living in the US. I am interested in the status of someone who holds ticker symbol  GTU (Central gold trust) or PHYS (Sprott Physical Gold Bullion Trust).
In the past FORM 8621 has been filed
I hope you can answer this question.
Thank you
Steve
Their reply:
Dear Steve
Thank you for your comments about the Instructions for Form 8938 Statement of Specified Foreign Financial Asset..
For detailed definitions of which assets are Specified Foreign Financial Assets,  refer to page 3 of the instructions under Specified Foreign Financial Assets. 
Starting on page 4 under paragraph Specified Foreign Financial Assets Required to be Reported,  we explained when a taxpayer must report the specified foreign financial asset on Form 8938.
Form 8938 does not substitute the requirement of filing Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund..

In the instructions for Form 8938 under Duplicative reporting, a taxpayer is instructed to avoid duplicative reporting by not reporting a specified foreign financial asset on Form 8938 if it was reported in on one or more of the forms listed in the paragraph and  that was file with the IRS for the same tax year. Form 8621 is one of the forms listed.  You need to follow the instructions.

In reference to your  "interest in the status of someone who holds ticker symbol  GTU (Central gold trust) or PHYS (Sprott Physical Gold Bullion Trust)"  we are referring your tax question to Mr. Lowell G. Hancock from the Large Business and International Division. 

Mr.Hancock answers international technical questions submitted by individuals and/or firms. 

I hope this clarifies it for you. Thanks again for your  comments and question.


Carmen García-Salgado
Employee Number 1000782172
Tax Law Specialist
SE:W:CAR:MP:T:B
Business, Exempt Organizations and International Tax
Forms and Publications Branch
202-622-8851
Pleasure in the job puts perfection in the work.
Aristotle

So I guess you will have to wait a little longer for an answer to your question.

Carmen must work for the government; she spent 30+ minutes crafting a response that says:

"I don't know. I will ask."

6 Iron wrote: Carmen must work for the government; she spent 30+ minutes crafting a response that says:

"I don't know. I will ask."

And if the question had come from another govt official, it would have taken an hour.

History
I sent the email         October 08, 2011
The reply received     October 17, 2011  

In early July
I called
I followed instructions to call For further information regarding this notice, So I contacted Susan E. Massey at (202) 622-3840 (not a toll-free call).
Susan E. Massey  could not answer the question regarding if a closed end Canadian mutual fund that trades on the NYSE is to be considered a foreign asset?
She refered me to Joe Henderson (202 622 3446) he was the person she said would  know.
He told me that the answer would be in the instructions when they were released.
After the instructions were released it still was not clear to me so I wrote the email.

To me it is simple question: if a foreign stock or fund that trades on the NYSE has to be reported then I report it. If not then I don't reported it on this form.
If it does need to be reported because the amount of the holding is over the threshold.  I can fill out the form in about 30 seconds.  Form 8621 only takes a few minutes to file and this would take less.

The reporting threshold requirements are explained well.

From the seeking alpha blog:

I’ll stop beating around the bush now, and talk about the cheapest gold ETF out there: Central Gold Trust (AMEX: GTU).

They charge a 0.36% expense ratio. The good news is, they have a history of lowering this expense ratio as the fund gets larger. As you can see below, Central Gold has lagged the price of gold lately. I don’t think that’s necessarily a bad thing. They also hold 98% of their assets in gold, with the other 2% in cash. Though it’s a Canadian ETF, all assets are denominated in dollars.

The best part: this ETF is taxed like a mutual fund - which is a huge benefit.

Taxed like a mutual fund- is this still the case? The article is from December 2010 and the author is "long physical gold and silver" only, so maybe he's not the best source of info.
Anyway, most of my non-tangible gold is in GTU, so this will be good to know before I sell.

As far as I know GTU is taxed like a regular mutual fund provided you fill out the proper paperwork. FORM 8621 with proper election and some additional paperwork PFIC Statement from Central Gold Trust etc. Also if you hold allot of GTU be aware of Form 8938

Good to know, thanks!

dualstow wrote:the author is "long physical gold and silver" only, so maybe he's not the best source of info.

I finally found the answer that I was look for regarding my simple question:I have a question that no one seems to be able to answer. This is in regard to Form 8938, Statement of Specified Foreign Financial Assets

Would a closed end Canadian mutual fund that trades on the NYSE be considered a foreign asset?  If it is held in a US brokerage account like Vanguard by a US citizen living in the US. I am interested in the status of someone who holds ticker symbol  GTU (Central gold trust) or PHYS (Sprott Physical Gold Bullion Trust).
The long awaited answer is if it is held in a US brokage account it does not need to be reported on form 8938
The other forms still need to be done if in a taxable account
FORM 8621 with proper election and additional statement.

steve wrote: The other forms still need to be done if in a taxable account
FORM 8621 with proper election and some additional paperwork PFIC Statement from Central Gold Trust etc.

My accountant doesn't think I need to fill out any forms or sign any PFIC's, period. Is this possible?
I'm married filing jointly.
I hold less than 100K each in shares of GTU and PHYS (and IAU).
In fact, the total value of all those holdings is under 100K.
I have added shares throughout the year, but I have not sold any.
Still, I thought someone on this forum said you have to fill out 8621 even if you don't sell. (?)

I spoke to Joe Henderson at the IRS about a week ago. He told me that regarding the new form 8938:
if it is held in a US brokage account it does not need to be reported on form 8938. (This is the Statement of Specified Foreign Financial Assets)
FORM 8621 still needs to be filled out.
I'm an not an accountant. But I follow the instructions and what I was told when I spoke to the IRS.
A shareholder of a PFIC must attach certain information to Form 8621. This information includes:
• The number of shares in each class of stock owned by the shareholder at the beginning of its tax
year;
• Any changes in the number of shares in each class of stock during its tax year and the dates of
such changes; and
• The number of shares in each class of stock at the end of its tax year.

If this is your first year you also need to make the QEF election which is how I do it.
Or you can do what your accountant says. If you hold it in an IRA I think he is correct. This would also apply to PHYS

Many thanks!
I will pass it on.

I think this has been touched on before here but I use TurboTax for tax purposes. I read something on here about not being able to e-file if you're having to fill out the form for reclassifying GTU for Long-term Capital Gains? Is this correct? If it is, I might be discouraged a bit from using GTU for part of my rebalancing-gold holdings.

1NV35T0R wrote: I think this has been touched on before here but I use TurboTax for tax purposes. I read something on here about not being able to e-file if you're having to fill out the form for reclassifying GTU for Long-term Capital Gains? Is this correct? If it is, I might be discouraged a bit from using GTU for part of my rebalancing-gold holdings.

In the past you could not e file but that has been changing as some software now has the forms. This past tax year taxact included the form and made it possible to e file. I still sent my form in buy mail because I had filled out all the forms way in advance and did not know that e filing would be possible. Maybe next year I will e file although if I do that my yearly pilgrimage to the post office may cause my friends there undo worry and I may have to go there anyway just to say hello.

steve wrote:

1NV35T0R wrote: I think this has been touched on before here but I use TurboTax for tax purposes. I read something on here about not being able to e-file if you're having to fill out the form for reclassifying GTU for Long-term Capital Gains? Is this correct? If it is, I might be discouraged a bit from using GTU for part of my rebalancing-gold holdings.

In the past you could not e file but that has been changing as some software now has the forms. This past tax year taxact included the form and made it possible to e file. I still sent my form in buy mail because I had filled out all the forms way in advance and did not know that e filing would be possible. Maybe next year I will e file although if I do that my yearly pilgrimage to the post office may cause my friends there undo worry and I may have to go there anyway just to say hello.

Many thanks for the knowledge. I guess I've just gotten used to e file with TurboTax each year. I'm wondering if you can do a hybrid approach at all of sending in your tax returns by e file for everything else and stating something in the e file about the other form. Then, mailing in the 8621 form and anything else monetary-wise to pay for any capital gains, etc.

1NV35T0R wrote:

Many thanks for the knowledge. I guess I've just gotten used to e file with TurboTax each year. I'm wondering if you can do a hybrid approach at all of sending in your tax returns by e file for everything else and stating something in the e file about the other form. Then, mailing in the 8621 form and anything else monetary-wise to pay for any capital gains, etc.

You may find that you like Taxact software better then TurboTax

steve wrote:

1NV35T0R wrote:

Many thanks for the knowledge. I guess I've just gotten used to e file with TurboTax each year. I'm wondering if you can do a hybrid approach at all of sending in your tax returns by e file for everything else and stating something in the e file about the other form. Then, mailing in the 8621 form and anything else monetary-wise to pay for any capital gains, etc.

You may find that you like Taxact software better then TurboTax

I'll have to check that out then. I've just been using TurboTax since my father uses that and it has like 5 returns you can do from one copy of it. Call it the family plan of tax software. I'll be looking into this still though.