Argument about whether you are required to disclose foreign currency you hold in the form of cash to FINCEN

Posted by John T. Reed on Aug 15, 2018

In a Facebook discussion, I said,

4. FINCEN only covers financial accounts. You are not required to report gold or other precious metals or cash held abroad. Your statement that the rules apply to the contents of safe deposit boxes is false. There is an IRS FAQ that says so. I linked to it repeatedly.

Reader Dog Thorburn responded,

On # 4, respectfully John, you are incorrect.

I had such a case. My client thought reporting the contents of his safe deposit box in Switzerland might be required when this crap began to come down in '08. I didn't believe it, and after reading the reg's and making little sense of them, I called the IRS regulation writer who wrote the reg's. She told me the contents, precious metals, had to be reported. Now, granted, that doesn't mean she was right. But upon further investigation, I concluded she was. Show me your IRS FAQ link please!

Reed responds:

https://www.irs.gov/businesses/corporations/basic-questions-and-answers-on-form-8938#CashQ1

Doug Thorburn John T. Reed Good to know, but this refers to Form 8938, not the FinCEN report. Is the answer in regards to FinCEN the same, or is it different? It clearly was required in 2008 when I researched the topic. (BTW, the link is an excellent resource. Thank you.)

Doug Thorburn John T. Reed Robert W. Wood, who writes a tax column for Forbes, and Milan Ball write that the contents of safe deposit boxes "may" be reportable, and get into the gory details in this excellent piece: http://www.woodllp.com/Publications/Articles/pdf/Reporting_Cash_TN.pdf

Doug Thorburn And this shows the vast differences in reporting requirements between Form 8938 and Form 114 (FinCEN). Note that it states reporting safe deposit box contents isn't required for either form, but the IRS wrote this and we all know (or do we?) that we cannot rely on the IRS's own pronouncements as substantive authority. It's a disgusting state of affairs.

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

John T. Reed Requiring divulging the contents of a safe deposit box, especially one in a foreign country, strikes me as a search without probable cause or a warrant. The government has the right to enforce laws, but not to be generally nosy for no particular purpose.

I would like to see Doug’s citation on that. Also seems like it is covered by various money laundering rules like having to disclose when you take $10,000 or more across the border. Or when you wire money abroad.
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Even the bank that holds the safe deposit box gives you a private room in which to access the contents and looks the other way literally if you open it in their presence.
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Divulging the contents of a safe deposit box also sounds like something for a debtor deposition where a person is in bankruptcy or has lost a judgement but not yet paid it.

Doug Thorburn Governments violate the real law--the Constitution--all the time with impunity (a subject for a different time: how stare decisis allowed law to deviate so far from the original intent). One of the links (and I've only skimmed them so far, but I will more thoroughly digest them later) says that IF you can instruct the bank to open the safe deposit box and instruct them to buy or sell contents to it, THEN the contents of that box must be reported on the FinCEN (back then, FBAR) report. Unfortunately, my client died last year, so I can't ask him if that was the case. However, we both concluded that the contents must be reported and we did a sort-of "silent" filing with a request for abatement of penalties. Never heard from them, which made us both very happy.

John T. Reed I need the citations. You said you talked to the Treasury person who wrote the reg. Interesting, but it has no standing as legal authority. Courts often turn to LEGISLATIVE history to ascertain legislative intent when a statute is ambiguous. A. I am not aware of any ambiguity in this case and B. I have never heard of a court considering REGULATOR intent in resolving ambiguity. Absent explicit constitutional and statutory authority, it’s not law. Legislative intent may only be considered when the pertinent constitutional or statutory words are ambiguous. Regulator intent never has any standing anywhere at any time as far as I know.

Some other person wrote the reg that said you had to pay social security tax on free residence provided for the convenience of the employer. Then the U.S. Supreme Court said, “No, you don’t.” Ditto home office regs at a lower court. Regs are regularly thrown out for exceeding the authority granted by the statute or the Constitution.
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The Constitution—the highest authority for those not knowledgeable about U.S. law—says you cannot do a search without a warrant and that warrant must be based upon a probable cause to believe that a crime has been committed which must come from a credible affidavit. There has been much talk about lately regarding the FISA warrant on Carter Page.
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Regulations must stay within the mandate of BOTH the Constitution and the statute that authorizes them.

Seems to me that there is no basis for citizens to conclude that they must disclose contents of a foreign or domestic safe deposit box absent a search warrant issued by a U.S. judge. Enforcing such a warrant in another country is beyond my expertise but sounds unlikely absent a court judgment and a treaty between the two countries that requires honoring the foreign warrant.

The IRS FAQ saying cash need not be disclosed on your tax return is evidence that it need not be disclosed on FINCEN either. So is the fact that you and your client failed to disclose, belatedly did, and heard nothing about it. Those are both weak evidence, but they are certainly not evidence that FINCEN requires disclosure of foreign currency, especially foreign currency held abroad.
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Seems to me the citizen or U.S. resident in question ought not disclose it on Constitutional grounds. Perhaps also on statutory grounds if there is no explicit statute requiring it.
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In the event of litigation on it, the Treasury would have to state how the court in question had jurisdiction and in the event of a very likely 12(b)(6) motion (failure to state a cause of action, that is, suing over a law violation that violates no law), state the Constitutional and statutory genesis of the law violation. Absent that, the Treasury should lose the motion.

There is also the practical consideration of how the government is going to find about any of this absent an unpaid judgement against the resident or a search warrant. The bureaucrats generally do not deal in de minimis amounts of money or cases where it is extremely hard to gather evidence and make a case. And the government’s mandate is to create and enforce laws. Their ability to issue regulations is a subset of their ability to pass laws. The Constitution does not authorize the government to engage in whatever nosy fishing expeditions it wishes. The government can only go where a valid law has been violated. Doug says the government often violates the law. True. And the response to that is to say so to the court where the government is doing that, not to pretend the government has the right to engage in such illegal behavior.

My book on this, How to Protect Your Life Savings from hyperinflation & Depression, 2nd edition has been out for six years. The first buyers are typically experts in the field. No one other than Doug Thorburn has suggested that U.S. residents need disclose foreign currency to FInCen. That is not admissible in court, but it suggests Doug’s conclusion is a “minority” or maybe even a unique dissent.

I need to see the chain of authority from the U.S. Constitution and other pertinent statutes to the conclusion that U.S. residents must disclose foreign currency held in the form of cash needs to be disclosed to the Treasury absent a search warrant of unpaid judgment against the resident.

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