Tom Cloud: How to Sell Gold Without Reporting It
In this week's talk with National Numismatic Associates' Tom Cloud, he answers two big questions that confront precious metals buyers: Why are sales of some coins and bars reportable to the IRS and others not? And is it possible to buy and sell precious metals confidentially?
Dollar Collapse: Hi Tom. So, what are you hearing from clients this week?
Tom Cloud: A lot of people are asking for British sovereigns, Swiss francs, and Austrian coronas, coins that don't require filing 1099s when you sell them.
DC: The fact that some coins and bars have to be reported and some don't seems both arbitrary and important in deciding what to buy. Could you give an overview of US precious metals reporting rules and how your clients tend to approach the issue?
TC: Sure. When they created the Patriot Act [in 2001], the excuse was that the terrorists who blew up the Twin Towers had used pure gold and silver to finance their flight training. Whether that's true or not, I don't know. But the US imposed reporting requirements on sellers of 24-carat gold coins. If you sell more than 24 ounces in one year you're required to file a Form 1099 with the IRS.
The 24-coin threshold applies to individuals, not families. If a husband and wife buy gold under their own names, they can each sell up to 24 ounces without having to report it. But if they bought the gold jointly, for instance with a check with both their names on it, they can only sell a total of 24 ounces in any given year. If a client sells 12 in March and 13 in December, all 25 ounces have to be reported to the government. If a client comes to me and sells 12 ounces and goes to another dealer and sells 13 ounces, they have triggered the reporting requirement, and it's their responsibility to report it. Even if they think they're getting away with something they may not be. I'm required to keep records, so if the government calls I have to reveal them. There are several cases where coin sellers have had to pay huge penalties for trying to avoid reporting by using more than one dealer.
Most 22-carat gold coins are exempt from Patriot Act reporting requirements, the only exception being the krugerrand.
DC: You mentioned European coins. Why are they exempt?
TC: There are some European coins that aren't being made any more. Technically, people consider them to be rare, semi-numismatic coins. But some of them are actually cheaper than the major bullion coins. For example, the Austrian corona was only made from 1908 to 1915. It has .9802 oz of gold in it. If you're out there today buying a gold eagle, you're going to pay 5% - 6.5% over spot. But I buy Austrian coronas from a central bank as bullion coins, and can sell them at 2.75% over spot.
Another good example is the French 20 franc coin, which was made from 1856 to 1914. It contains 0.1867 ounce of gold, so it takes 5.35 of them to equal an ounce. Fractional coins usually have very large premiums. For example, a quarter-ounce gold eagle is somewhere between 10% and 12% over melt. We've got French 20 franc coins at 4.5% over spot and we're selling hundreds of thousands of dollars worth of them because they're completely confidential. So the best buy right now is the European coins because of their combination of low premiums and confidentiality. Every major wholesaler that I deal with puts a price out trying to buy these European coins every day. There's big demand for them.
DC: Let's summarize with a list of which coins are and are not reportable.
TC: The following one-ounce gold coins are reportable beyond the 24-ounce threshold: the maple leaf, philharmonic, kangaroo, krugerrand, Mexican onza, and buffalo. All one-ounce gold bars are also reportable above 24 ounces.
The following 22-carat gold coins are not reportable: US gold eagle, Mexican 50 peso, Austrian 100 corona, British sovereign, French 20 franc, Swiss 20 franc.
DC: Got it. What about silver?
TC: Silver is very easy. There are only two things. One is a full bag of junk silver which contains 715 ounces and constitutes $1,000 face value. It is reportable in the calendar year that it's sold. The other is silver bars and coins in any combination - one-ounce, ten-ounce, 100-ounce or 1000-ounce - once the total hits 1,000 ounces. So you can actually sell more ounces in silver bars than you can of junk silver and not have to report it.
DC: Any risk of these rules being tightened?
TC: They tried with the health care bill provision that any transaction over $600 required a 1099, but when everybody realized that whether you bought a high-def TV at Wal-Mart or a gold bar or a car, both the buyer and seller would have to send a 1099 to the government, they dropped that rule. I don't see anything similar on the horizon.