Which Gold Transactions are Reported to the IRS? 1

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One of the characteristics of the gold market is that there are a lot of myths about it. There is also a lot of misinformation, often repeated by gold sellers who should know better. One of these myths is that all gold transactions have to be reported to the US government. This is untrue.

Here are the facts as of late 2010 (this is not legal advice for a specific case):

Cash reporting transation

If you buy any form of gold from a coin dealer or a securities broker or a commodities broker or anyone else, there is no required reporting to the IRS of your purchase unless you pay more than $10,000 in cash (not personal checks), which is reported as a "cash reporting transaction".

This reporting is required for any transfer of cash to an investment account, regardless of whether you buy gold, silver, stocks or a closed-end widget fund.

Anti-money laundering policy

In addition, broker-dealers, FCMs (futures commission merchants) and coin dealers are required to have in place an anti-money laundering (AML) policy. Coin dealers are required to record the customer name for purchases over some threshold amount, typically $3,000, under AML regulations. AML regulations require that the dealer record and hold the information for inspection; it is not reported.

Every investment dealer is required to have an AML policy in place, not just coin dealers.

Proceeds from sales transactions

Proceeds from your securities and commodities sales transactions (not your purchases) that are handled by securities and commodities brokers have long been reportable to the IRS on Form 1099-B as proceeds from brokerage transactions. Likewise, proceeds from certain (not all) customer sales handled by coin dealers must also be reported to the IRS by the dealer on Form 1099-B.

The reporting required by coin dealers is narrow and covers sales by customers of very specific types of objects in a single transaction or set of related transactions, as follows:

.995 fine gold bars totalling 1 kilo (32.15 ounces) or more
.999 fine silver bars totalling 1,000 ounces or more
.9995 fine platinum bars totalling 25 ounces or more
.9995 fine palladium bars totalling 100 ounces or more
1-ounce gold Maple Leaf, gold Kruggerrand, or gold Mexican Onza of 25 coins of one type
US 90% silver coins totalling $10,000 face (though some dealers report $1,000 face)

You might wonder why sales of these specific objects are reportable. These reporting requirements are related to the regulations that require brokers to report all proceeds from stock and commodity transactions. These specific objects are currently traded or used to be traded on commodity exchanges.

Form 1099-B reporting requirements do not apply to any other coins. They do not apply at all to American Gold Eagles, American Buffalo, Austrian, Australian, Chinese or any fractional bullion gold coins. And they apply only if you sell at least the minimum quantity that is equal to the quantity of a commodity contract for the object.

Thus, most bullion coins (like most other gold coins) are non-reportable upon sale. Coin dealers sometimes promote pre-1933 coins as so-called non-reportable numismatic coins, implying that bullion gold coin purchases as well as sales are reportable. This is false. Only your sales are reportable, and then only of the objects and in the minimum quantities listed above. At the time you sell (if you are concerned about it), you should verify the regulations with your accountant, since they may have grown, changed or taken flight.

The notorious Form 1099 reporting in the 2010 health care law

Effective January 1, 2012 (unless repealed or amended), the 2010 health care law requires reporting on Form 1099s of all customer sales to coin dealers totalling $600 or more in a year. This statute applies to proceeds paid by any business for everything from office supplies to automobiles, not just your resale to a dealer of your gold coins. Its purpose is to facilitate enforcement of Federal income tax laws, specifically to collect more taxes from businesses, and to support the Obama Administration claim that the health care law will not expand the deficit.

There are many small businesses that object to this law on the grounds that it places a burden on them to keep track of their purchases. If aggregate purchases from a given supplier reach $600, they must report the payments to the vendor and IRS on a Form 1099. In addition, they will have to request a Tax ID number from every vendor.

Coin dealers who buy back gold coins from customers will apparently have to report the purchases to the IRS. A consequence of this law will be to drive some gold buying and selling business to non-US dealers, just as the threat of gold confiscation drives physical gold storage to non-US depositories and generally depresses legitimate gold-buying activity.

As a former bullion dealer Jerry White has bought and sold millions of ounces of precious metals. Gold and silver offer opportunities for profit and safety not available with any other investment. He recently published a precious metals investor's guide, How to Buy Gold and Silver Today, to help investors avoid pitfalls and choose appropriate forms of gold to meet their goals.

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1 Responses So Far:

Commodity brokers said...

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