Tax loophole on Gold Eagles

[blazespinnaker]

Interesting bloomberg article:

http://bloomberg.com/apps/news?pid=2...PEE&refer=home

Caveat: as I explained in a previous thread, there is no significant premium over bullion gold (blank bars), and that the current premiums quoted in the article above is only over numismatic gold -maples, eagles, etc.

But that wasn't my point for this thread. My point was this statement:

"Eagles also slip through a loophole in the tax reporting law, says Scott Travers, author of ``The Coin Collector's Survival Manual.'' Dealers have to report to the Internal Revenue Service if you sell 25 or more Maples or Krugerrands. They're not required to report your sales of American Eagles and some other coins, although some may do so. (Kitco, in Canada, says it does no tax reporting at all.) "

Interesting statement. Is this right? Can you pick up as many eagles as you want without having to report to the IRS? Anyone know which dealers will not report?

[Jim Nickerson]

Re: Tax loophole on Gold Eagles

Interesting bloomberg article:

http://bloomberg.com/apps/news?pid=2...PEE&refer=home

Caveat: as I explained in a previous thread, there is no significant premium over bullion gold (blank bars), and that the current premiums quoted in the article above is only over numismatic gold -maples, eagles, etc.

But that wasn't my point for this thread. My point was this statement:

"Eagles also slip through a loophole in the tax reporting law, says Scott Travers, author of ``The Coin Collector's Survival Manual.'' Dealers have to report to the Internal Revenue Service if you sell 25 or more Maples or Krugerrands. They're not required to report your sales of American Eagles and some other coins, although some may do so. (Kitco, in Canada, says it does no tax reporting at all.) "

Interesting statement. Is this right? Can you pick up as many eagles as you want without having to report to the IRS? Anyone know which dealers will not report?

I don't know the specific answer to your question; however, you may be making a similar omission that I made here in comprehending exactly what you are reading. I don't think the IRS cares jack-shit what you buy as there is no tax liability associated with that. It is when you sell that you create a gain or loss, and it is your legal responsibility to report capital gains--on anything--and there is no statute of limitations on failure to report income. That any dealer doesn't report sales to the IRS for things you buy is not the same thing as whether or not they don't report your sales back to them. It is the latter that is potentially important with regard to taxation, and if the dealer reports buying your gold to the IRS and you don't report gains (assuming some were made) then perhaps you could get caught.

[blazespinnaker]

Re: Tax loophole on Gold Eagles

Let me be clear about what I am asking, in case I wasn't earlier:

a - is the article right, is there a loophole with eagles?
b - is the article right, in that you don't get reported to the IRS (ie, no paper trail for the government to come and confiscate your gold)
c - if so, which dealers don't report?

Cheers,

Blaze.

[grizam303]

Re: Tax loophole on Gold Eagles

The IRS doesn't care if you buy a bunch of gold. They will care if you sell a bunch of gold, since it is potentially generating income. If your sale is reported to the IRS, it's your duty to establish its basis, or what you paid for it.

The real question is if a report is sent to the IRS when you sell coins to a dealer. I don't know the answer.

[blazespinnaker]

Re: Tax loophole on Gold Eagles

The IRS doesn't care if you buy a bunch of gold. They will care if you sell a bunch of gold, since it is potentially generating income. If your sale is reported to the IRS, it's your duty to establish its basis, or what you paid for it.

The real question is if a report is sent to the IRS when you sell coins to a dealer. I don't know the answer.

So you're saying that Bloomberg report is wrong? There is no tax loophole on Eagles?

Are you an expert in this field .. ie, are you a broker or someone who works with reporting laws and gold purchases?

I'm not saying you're not, but if you are, I'll take your word over a journalist with regards to the taxation.

If you're not an expert, perhaps you can cite an expert who says the article is factually incorrect?

I thought it was an interesting statement for Bloomberg to make and assumed that that their fact checkers wouldn't have gotten it wrong, but I supposed anything is possible, which is why I posted this thread.

[blazespinnaker]

Re: Tax loophole on Gold Eagles

Some interesting reading, which might indicate that the situation is more complicated than you might think:


http://www.teamliberty.net/id66.html

If I received a $50 American Gold Eagle (legal tender) as a wage, would I need to claim $50 on my tax return or the market value? Today, the $50 American Gold Eagle was selling for approximately $980.00.

The IRS wrote:

You will only be reporting your wages of $50. The American Gold Eagle is now your capital asset (collectible), and any gain or loss on the coin will not be reported as income or loss until you dispose of the coin.

Extremely fascinating, if true. This means that one could accumulate significant income without paying taxes.

Of course, you have to look at it from the perspective of the employer. Can they expense the full value of the coin when reporting their income? I bet they can't, which is why people don't use this particular method of payment.

However, for certain service, such as getting your house built or someone to pave your driveway, etc, it sounds pretty fantastic. A legal way to pay someone under the table.

[grizam303]

Re: Tax loophole on Gold Eagles

So you're saying that Bloomberg report is wrong? There is no tax loophole on Eagles?

Are you an expert in this field .. ie, are you a broker or someone who works with reporting laws and gold purchases?

I'm not saying you're not, but if you are, I'll take your word over a journalist with regards to the taxation.

If you're not an expert, perhaps you can cite an expert who says the article is factually incorrect?

I thought it was an interesting statement for Bloomberg to make and assumed that that their fact checkers wouldn't have gotten it wrong, but I supposed anything is possible, which is why I posted this thread.

I am a tax accountant, but I was reading into the responses to the post instead of the original post itself. It does answer what I was unsure about, that when you sell eagles, the buyer is not required to report the sale to the IRS.

My original post was addressing a response related to if they reported purchases of coins. The IRS doesn't care when you spend money, they only care when you get money. Without having read the article, I was saying that it was unclear based on the responses. The article clears this up though.

Also, don't misread what the article says. "Eagles also slip through a loophole in the tax reporting law..." does not mean that you do not have to report income in the form of gains when selling coins, only that the purchaser doesn't have to generate a report from it (like a 1099). So essentially, this reporting loophole makes it easier for one to evade taxes, but make no mistake, it does not release you from a tax liability generated by gains on the sale of coins.

[blazespinnaker]

Re: Tax loophole on Gold Eagles

[
Also, don't misread what the article says. "Eagles also slip through a loophole in the tax reporting law..." does not mean that you do not have to report income in the form of gains when selling coins, only that the purchaser doesn't have to generate a report from it (like a 1099). So essentially, this reporting loophole makes it easier for one to evade taxes, but make no mistake, it does not release you from a tax liability generated by gains on the sale of coins.

If you are an accountant, then you should know that this is *a massive tax loophole* - if true - which I am somewhat astounded by. This gives someone the ability to pay them in a currency in such a way that they can declare their income when they see fit. Basically, get paid in gold coins, and only sell them when the tax laws are in your favor.

It's an incredible deal.

My only particular concern is - I'm not a big believer of Gold as an asset class. However, for those who want to collect a large number of gold coins, I think your best bet is to get paid in them for some work rather than buy them via your cash account.

[chrisk]

Re: Tax loophole on Gold Eagles

In addition to the buy/sell distinction, there is also a distinction between the report to the IRS of a sale for gains tax purposes, and the required reporting of cash transactions over $10k (I don't remember which agency this goes to). So, for instance, your sale of 30 gold eagles may not be reported to the IRS, but if you receive cash for them, the transaction must still be reported by the dealer (at present gold prices anyway!).

http://en.wikipedia.org/wiki/Currenc...saction_Report

Note also the "Suspicious Activity Report" described in the link. We're all considered terrorists until proven otherwise, these days.

I'm not an expert though; do your own research.

[grizam303]

Re: Tax loophole on Gold Eagles

If you are an accountant, then you should know that this is *a massive tax loophole* - if true - which I am somewhat astounded by. This gives someone the ability to pay them in a currency in such a way that they can declare their income when they see fit. Basically, get paid in gold coins, and only sell them when the tax laws are in your favor.

It's an incredible deal.

My only particular concern is - I'm not a big believer of Gold as an asset class. However, for those who want to collect a large number of gold coins, I think your best bet is to get paid in them for some work rather than buy them via your cash account.

It's comparable to black market profits. No paper trail, but legally, you can still get busted on it. I'm actually a big advocate about keeping as much as I can off paper, so I'm delighted by this reporting loophole. Whether or not someone chooses to break the law with it is their own prerogative.

[nathanhulick]

Re: Tax loophole on Gold Eagles

If you are an accountant, then you should know that this is *a massive tax loophole* - if true - which I am somewhat astounded by. This gives someone the ability to pay them in a currency in such a way that they can declare their income when they see fit. Basically, get paid in gold coins, and only sell them when the tax laws are in your favor.

It's an incredible deal.

My only particular concern is - I'm not a big believer of Gold as an asset class. However, for those who want to collect a large number of gold coins, I think your best bet is to get paid in them for some work rather than buy them via your cash account.

There was recently a case where an employer was paying his employees in gold and silver coins (us legal tender) and the government went after him and the employees. Since the coins are legal tender, they were using legal tender value instead of bullion value.

There are a couple of problems with using this strategy, minimum wage laws (in this case the employees were considered general contractors), the fact that it is obviously going to attract some attention from the feds in the event they find out, etc.

Look up Robert Kahre if you are interested in reading about the case.

[Rajiv]

Re: Tax loophole on Gold Eagles

I believe that the IRS response quoted was made after the IRS lost the Kahre case

The IRS e-mail

March 22, 2008 – Earlier this month the Muckraker Report published an article titled American Gold Eagle preys upon the IRS. In the article, the question regarding how much income needed to be claimed on a tax return when a taxpayer received an American Gold Eagle coin as pay for labor / services was examined.

On February 21, 2008, IRS tax assistance representative Bob Knierim told the Muckraker Report that if a taxpayer received a $50 American Gold Eagle in exchange for labor / services, the taxpayer would be required to claim market value of the coin rather than the legal tender value of $50. Market value of gold changes daily. The market value of a $50 American Gold Eagle is approximately $920 today. A few weeks ago it was over $1000.
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However, on March 8, 2008 the IRS finally was able to provide an e-mail response and answer to this question:

If I received a $50 American Gold Eagle (legal tender) as a wage, would I need to claim $50 on my tax return or the market value? Today, the $50 American Gold Eagle was selling for approximately $980.00.


The IRS wrote:
You will only be reporting your wages of $50. The American Gold Eagle is now your capital asset (collectible), and any gain or loss on the coin will not be reported as income or loss until you dispose of the coin.


(Scan of actual IRS e-mail response is located at the end of this article)

[metalman]

Re: Tax loophole on Gold Eagles

good one, rajiv!

a $50 bill and a $50 coin are the same legal tender whether paper or gold as payment.

sell it and the $700 gain (as of today) is profit on sale of a 'collectible'. you owe 28% of $650 or $128.

let's say the boss pays you 2 x $50 coins a week for $1400 pay, $100 nominal.

that's $100 reported income. assume $28 @ 28% income tax on that. your total tax is $256 + $28 = $384 on $1400 in realized income. that's a tax rate of 28%, about the same as normal income tax... with a lot more trouble.

no free lunch with uncle sam.

[Rajiv]

Re: Tax loophole on Gold Eagles

good one, rajiv!

a $50 bill and a $50 coin are the same legal tender whether paper or gold as payment.

sell it and the $700 gain (as of today) is profit on sale of a 'collectible'. you owe 28% of $650 or $128.

let's say the boss pays you 2 x $50 coins a week for $1400 pay, $100 nominal.

that's $100 reported income. assume $28 @ 28% income tax on that. your total tax is $256 + $28 = $384 on $1400 in realized income. that's a tax rate of 28%, about the same as normal income tax... with a lot more trouble.

no free lunch with uncle sam.

Yes indeed -- however if you save that eagle, it is no different from putting away gold in your 401K

Also the capital gains tax is lower than income tax

Currently, capital gains may be taxed at 5 percent, 15 percent, 25 percent or 28 percent, or a combination of rates. These tax levels are known as long-term capital gains and apply to assets that you hold for at least 366 days (more than one year).
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5-percent rate
This capital gains rate applies to taxpayers in the 10-percent or 15-percent income tax brackets. They will pay a maximum 5-percent long-term gains rate on property held for more than a year.

Lower-income investors get an even better investment sale deal in 2008. That year, these filers will pay no tax on sales of long-term holdings. (More on this later.)

The 5-percent rate still applies to a portion of your gains even if your asset sale pushes you into a higher bracket. For example, if as a single filer. your taxable income was $30,000, but you netted another $3,000 from a long-term stock sale, some of that gain would still be taxed at the lower 5 percent capital gains rate even though technically you were bumped into the 25 percent tax bracket.

[c1ue]

Re: Tax loophole on Gold Eagles

More importantly - the person who paid you is eating a lot of tax burden by using such a practice.

After all, how can he deduct the $800 market price of the coin as an expense when the legal tender pay was only $100?

Thus the paymaster would end up paying taxes on $700 more 'profit' than he should. Doesn't seem like such a good deal.