Virgin Islands Investing

Today TaxMama hears from Tom in the Tax Quips Forum, who has gotten bad advice. “I started investing in an online program that is registered in the British Virgin Islands. They say that this program is exempt from the US Securities Act of 1933, the US Securities Exchange Act of 1934 and the US Investment Company Act of 1940 and all other rules, regulations and amendments thereof. We are not FDIC insured. We are not a licensed bank or a security firm.  My question is do I have to pay U.S. taxes on the profits I make on my investments with them?  If so, how do I do that?  They don’t provide any tax forms.” 


Dear Tom, 

I am so glad that you are asking this now, at the beginning of your investment project. Yes, of course you must pay taxes on your earnings.

As a U.S. resident or citizen, you are taxed on your WORLDWIDE income – regardless of what the promoters tell you. It’s disturbing that they would even sell it with the idea that you won’t have to pay taxes. And it’s even more disturbing that they say the investment is exempt from any laws or insurance that might protect you.

Personally, I’d pull my money out when people put something like this together. I had a client who got involved in something like this many years ago. I begged him to get out, fast. He didn’t. And at first, he doubled his money in no time. And doubled it again. Again, I advised him to pull out while he was ahead. He didn’t. The third time – he lost it all. It was a ponzi scheme, as it had to be with those kinds of returns and no protections for the investor. Unfortunately, in the meantime, he persuaded other friends to buy in. He was devastated at their losses.

Anyway, how do you report this?

Well, the first thing you will do is report the foreign account on the Treasury Form 90.22-1. That lets the US Treasury know that you have an overseas account – and how much is in it. There are no fees associated with this report. However, the penalties for not filing it can be as high as 100% of the account balance.


The second thing?  There is no need for them to issue tax forms. Those are only designed as tattle-tales so IRS also knows what you’ve earned. It’s your responsibility to keep track of your earnings and to pay taxes on them. No doubt, they give online access to your account to generate reports about your gains and losses. (If they don’t…you’re even more at risk of being defrauded.) You will print that out and report it the income on your tax return. If you get dividends, you will report them on Schedule B. But you won’t be able to take advantage of the special ‘qualified dividend’ rates, since undoubtedly those companies are not traded on the U.S. Stock Exchange. You will report your capital gains on Schedule D.

 It’s pretty simple. But I urge to be cautious. I’d hate to see you lose your money.

And remember, you can find answers to all kinds of questions about offshore investing and other tax issues, free. Where? Where else? At

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