Reporting Requirements for Gold: What You Need to Know (excerpt from Chapter 18, The ABCs of Gold Investing)
There has been and continues to be a great deal of confusion about federal reporting requirements with respect to gold purchases and sales. Part of the problem results from the fact that it took the Internal Revenue Service almost seven years to publish regulations on gold reporting from the time they were required by the Tax Equity and Fiscal Responsibility Act. In addition, many gold brokers have an incomplete understanding of the regulations themselves and have often passed along the wrong information to gold investors. It took several years of negotiations between the Industry Council for Tangible Assets (ICTA) and the IRS just to get specific regulations published.
The following are reportable items as listed by the Internal Revenue Service. Also shown is the threshold number of ounces that triggers the need to file a Form 1099 with the IRS. Remember, the reporting requirement occurs when you as a client sell, NOT when you purchase.
Also, more than one transaction engaged in for the purpose of circumventing the reporting laws is to be treated as a single transaction. This includes transactions by more than one member of the same family. The 1099s also require the seller's Social Security number. The ICTA warns:
"This information is provided to assist you and is not intended to be used by you as the sole guideline for complying with these regulations. You should consult your own tax professional. While a stricter interpretation of the regulations is possible, ICTA believes the above guidelines fulfill the spirit of the negotiations and the intent of the Internal Revenue Service."
I feel obligated to pass along the same caveats. Much remains unclear with respect to these reporting requirements.
Although gold coins not listed above are now exempt from reporting, there is no guarantee they will be exempt in the future. On the contrary, since the intent of the law is to raise revenue, it is likely that coins not on the list now will be included in future regulations, especially if the gold price rises. In addition, it is possible for the same reasons that the number of coins required for the reporting threshold will be reduced as the price of gold rises. Remember, from the point of view of the U.S. Treasury, this is a revenue issue. For now, the best solution is to own at least half of your gold in pre-1933 $20 gold pieces. (Ed. Note: Since "The ABCs of Gold Investing" 1997 publication date, Mr. Kosares has added pre-1933 European gold coins, like the British sovereign and Swiss 20 franc coins, as recommended acquisitions for those seeking to maximize privacy in their gold holdings.) They have been exempted repeatedly from various regulations -- including Form 1099 reporting requirements -- because of their status as collectors' items. Finally, you cannot escape paying taxes on your gains simply because an item is not listed by the U.S. Treasury. You are still responsible for taxes on your gains whether or not the item falls into a reportable category.
USAGOLD-Centennial Precious Metals' Client Memorandum, How You Can Survive a Potential Gold Confiscation, covers the Income Tax Regulations with respect to gold reporting requirements in detail (pages 31 and 32). See below.
The foregoing is meant to serve as an introduction to the reporting requirements for gold. The law and regulations are lengthy and complicated. If you are in doubt, the best course of action is to always discuss the matter with a tax consultant.
Legal Precedent Favors Pre-1933 Gold Coins as a Protection Against Confiscation
" In 1954, the Treasury Department recognized at last that the time had come to legitimize the numismatic gold market. Consequently, an amendment was made to the Gold regulations, to the effect that all gold coins minted prior to 1933 would subsequently be presumed to be rare and of recognized special value to collectors, without the necessity of further specific determinations by the Treasury. Coins minted after 1933 were still subject to specific Treasury Department rulings, which were to be base on the advice of the Curator of Numismatics of the United States National Museum. All U.S. gold coins and the vast majority of foreign gold coins were thus freed from the overhanging threat of confiscation, and a new era for American numismatics appeared to begin. " [Quote excerpted from a detailed account by Donald Hoppe written in 1970. Click for more info.]
A note to clients:
To understand how a gold confiscation might be possible nearly 70 years after the last one under Franklin Roosevelt occurred in 1933, all one needs to do is attempt to postulate how the massive federal debt (nearly $6 trillion and growing) and the outstanding international dollar float (resulting from the U.S. trade and budget deficits) are going to be reconciled. At present, the U.S. dollar enjoys special status around the world as the primary reserve currency. This encourages -- some would say "forces" -- central banks and individual investors globally to hold it. Leaving the various circumstances and potential scenarios aside, what would be the outcome if the props were kicked out from underneath this built-in dollar market, for whatever reason, and even a portion of the foreign-held greenbacks were repatriated to the United States, or set loose on world currency markets? Even more importantly, how would the government react to an economic emergency in which individuals, beset by either a devastating domestic inflation or a deflationary nightmare or both, were fleeing the banks and equity markets for gold as a means of preserving their personal capital? Beyond that, what would happen if our foreign creditors decided that the national debt should now be backed by something other than the government's promise to pay, and forced the United States to bring its gold reserves into play? Historically, confiscation has all too often been the option taken by governments beset by an economic breakdown. Just as gold is the asset of last resort for the individual portfolio doing service in the most financially threatening times, so it is all too often the asset of last resort for troubled governments as well. As recently as 1998 during the Asian Contagion, both South Korea and Thailand implemented "voluntary" gold call-ins. The temptation presented by its citizens' gold holdings was simply too facile to resist.
This memorandum -- which includes a question and answer overview and comprehensive supporting appendices -- details why we believe pre-1933 gold coins offer the best protection against a potential government gold confiscation. We do not in any way intend this to be a formal legal opinion, but a simple presentation of documents and political/economic history that might help you form your own opinion on the matter. Furthermore, we are not stating categorically that pre-1933 gold coins will survive confiscation. Instead we are stating that we believe, given the weight of legal precedent as reprinted here, this is the best option available for those with concerns about confiscation. Ultimately, you will be the one to weigh the potential for a gold confiscation and whether or not pre-1933 gold coins will be part of (or the totality) of your gold holdings. This memorandum provides to our knowledge the most detailed and comprehensive documentation on the subject of gold confiscation in the United States assembled to date. We sincerely hope it it fulfills the purpose for which it is intended -- to help you make an informed decision on the type of gold best suited to meet your portfolio goals.
First-time Gold Buyers: What you need to know before you buy your first ounce of gold.
CLIENT MEMORANDUM
How You Can Survive a Potential Gold Confiscation
by George R. Cooper, J.D. and Michael J. Kosares
Centennial Precious Metals, Inc.
Available in .pdf format at NO CHARGE upon your request. To obtain your FREE digital copy of this MEMORANDUM, simply contact Centennial to indicate your interest. "admin@usagold.com"
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