Richard Schwary – California Numismatic Investments

The subject of “reporting” has to be one of the most misunderstood and misrepresented in the trade today so I can’t figure out why you don’t see more about these rules in print or on the net? The reason might be that these mystical directions while holding sway over dealers are a virtual mess which were poorly written at inception and poorly resurrected a number of times since the government took an interest more than 30 years ago.

When gold was once again made available to Americans in 1975 today’s modern bullion dealer was reborn. Rare coin dealers at the time did not have much to do with bullion transactions except to facilitate trades for good customers. There were cash reporting requirements already on the books but mostly no one cared even the banks. If you were given cash you simply deposited it into your business account but most of the time payments were made by check.

Investors were more interested in how many Krugerrands they had to purchase to avoid paying state sales tax which was the way they used to do things. But then Treasury began to get interested in what Middle America was doing with precious metals and the “reporting” idea got more attention. Since that time both dealers and the public have come to believe many of these reporting requirements are an attempt by Uncle Sam to more closely monitor the precious metals because our government began to see them as a kind of unregistered security which is easy to buy and easy to sell privately.

Perhaps, but I actually believe the truth is more mundane and the government based their first decisions about “reporting” more on what was traded on the nation’s commodity exchanges and less on what was happening in coin stores across America because they really had little interest in the individual investor.

But to understand how this whole thing unfolded and why I believe much of the “reporting” requirement jargon is a red herring let’s look at the two areas most talked about by the public:

1. Cash Reporting: If you bring in more than $10,000 in cash or cash equivalents to your dealer he will present you with a Federal Form 8300 which will require things like your name, address, and social security number. Form 8300 is the real deal and presents serious legal consequences for both the buyer and the dealer. So please no winking or playing around here as this has been on the government radar screen since the cash trade in drugs entered America’s living room and more recently as terror became a reality in the US. And to make sure professionals were listening Uncle Sam prosecuted a few famous coin dealers and sent them to jail. They then published the results in Coin World which scared the bejeebers out of everyone because like I said prior to these landmark prosecutions cash was not a big deal in this business.

Also note that when the government talks about cash it is referring to the real green kind. I get regular questions about paying with wires or checks in reference to the $10,000 rule which clearly shows the public is still going through the learning curve when it comes to

“reporting”. You can purchase anything you want for any amount $10,000 or $10 million and there are no dealer reporting requirements as long as you pay with a check or wire.

2. Bullion Products Reporting: I will get into specifics further down but for the time being understand that there are a limited number of bullion products in certain quantities which are reportable and the buying dealer will file Federal Form 1099B. Now pay attention because for some reason the public misses this important point: This 1099B rule only applies to what you as a consumer are selling and does not have anything to do with what you purchase or how you pay for that purchase.

So why the long buildup and walk down memory lane? Because these rules were not presented properly in the first place the public now confuses state and federal tax issues, cash reporting requirements, federal and state capital gain rules and the use of both Federal Forms 1099B and 8300. They actually pick and choose through this dog and pony show and so the question of “reporting” is further obscured. And to make matters worse some honest coin dealers still do not have it right and the hard sell telemarketers use “reporting requirements” and fear mongering as a blunt club to “steer” new investors into the worst possible choices while lining their pockets with ridiculous commissions.

And even if you are new to this game and do a little research on your own there are questions which remain unanswered. The first thing you will notice is that many of these rules are arbitrary. The US Gold Eagle is one of America’s favorite bullion coins and yet it is not reportable but similar bullion coins like the Canadian Maple Leaf or the South African Krugerrand made the hit list.

So let me state what might seem like heresy about government commodity reporting. I believe they really do not give a fig about what you do in any specific sense and this reporting nonsense is another urban myth misread by the public and used and misused by dealers to sell product.

What really happens to all the reporting information we collect and submit to the government each year? I cannot site a single example of Uncle Sam coming back and asking questions except in the case of a wrong address or incorrect social security number. I believe no one is home in that he does not care when it comes to the physical metals because it is small potatoes when compared to commodities like wheat or corn.

If you study the reportable list below the first thing that should seem obvious is its lack of conscience intent. Some bullion product is listed but much of what is commonly accepted as bullion precious metal is missing and there is not even a provision for new products to be added. I guarantee the government could have done a better job if its real intent was invasion of your privacy and a “big brother” attempt at controlling the precious metals.

I believe the only reason we are bothered with this little sister today is because it was on a list of other big commodities and the statistical Washington wizards simply through it in on the deal because they were following orders. My bet is that in the end your reporting information becomes a very small part of a large government information stream studied by academics and burned out commodity traders.

The people that make a big deal out of this convoluted scheme are the conspiracy buffs who still believe in the grassy knoll theory. This is where the real paranoia began because they simply could not believe the government was not looking in their window.

To help sort out the situation and make more sense of a confused marketplace a few definitions might also be helpful because the word “reportable” has a number of interpretations when buying or selling bullion products.

Believe it or not I regularly receive Email which asks for the list of bullion coins which have no reporting requirements in the sense of capital gain reporting.

So some readers mistakenly think that choosing a particular product will avoid “reportable” income from the buying and selling of precious metals. There is no such list because there is no such product. Your Uncle Sam is interested in all your capital gains and losses because the resultant tax flow is important in supporting his spending habits.

But it might surprise you to find that the majority of bullion transactions are not reportable to Uncle Sam via Federal Form 1099B. For those bullion products which are reportable the rules can still be confusing because there are minimum size requirements.

The really good news here is that if the few government reporting requirements bother you, it is easy to do your homework and avoid products which fall into the reporting area. There are many low premium bullion bars and coins that have no reporting requirements upon resale and move directly with the spot market.

The following is what The Industry Council for Tangible Assets (ICTA) has to offer about what the I.R.S. wants in the way of paper work. They are describing the paper work provided by bullion dealers which relate to what you purchase or sell. These basic rules are taken from the ICTA newsletter Washington Wire dated December of 2004 which is the only source material I can find at the moment and you will just have to put up with my added comments.

First: You can place any size order and pay with a check or wire. No one cares, not even the government. The only time they want to hear from a dealer is if you invest more than $10,000 in real green cash or cash equivalent like a group of money orders purchased in smaller denominations. Then you must fill out I.R.S. Form 8300. There is nothing wrong with large cash transactions, but the government wants to know about them. And, by the way, you can’t spend $5000 today and $6000 tomorrow because Uncle Sam looks for these “chain” transactions and does not like to be fooled.

Second: There are rules which apply only to bullion and only come into play when you sell. As long as you don’t use cash you can purchase all the gold Kilo bars you want and no one cares but the first one you sell produces a “reporting” requirement. All Kilo bars are 32.15 troy ounces of gold and are subject to reporting by the purchasing dealer. Dealers are also required to report any one gold bar they purchase from the public which totals 32.15 ounces or more.

And what about those popular 1 ounce gold bullion coins everyone likes? If you sell 25 coins or more of the Krugerrand, Maple Leaf or Mexican Gold Onza dealers are also required to report the sale on Form 1099B.

But let’s not lose faith because there is some joy in that such reporting is not required on transactions involving the U.S. Gold Eagle the Australian Kangaroo or the Austrian Philharmonic. There is also no reporting on any small gold bullion coins or the popular fractional gold bullion coins which are available in 1/10, 1/4, and 1/2 ounce sizes.

Third: Dealers are required to report $1000 face 90% silver bags and 1000 ounce silver bar transactions only when you are selling. We are not asked to report your sale of 40% bags or less than $1000 face in 90% silver coin. The 10 and 1 ounce silver bar is exempt as long as the sale does not exceed 1000 ounces.

Fourth: When you sell platinum or palladium bars in quantities of 25 ounces or more the transaction is reportable. Platinum bullion coins like the Canadian Maple Leaf, the U.S. platinum Eagle, or the Australian Koala are exempt. Finally, palladium bullion coins like the Russian Ballerina are exempt.

Let me also mention an issue virtually never seen in print and ask a small favor: Don’t ask me or your neighborhood dealer how to “get around” these reporting requirements by variations on the theme. In other words if a $1000 bag of 90% is reportable a customer might suggest selling two half bags and avoiding the paperwork? Or why can’t I bring in a “friend” and both of us spend $9000 in cash and thus avoid the required reporting? No dealer in their right mind should answer this type of transparent question because it is a form of “structuring” and would make the dealer a party to the transaction. I just walk away and get accused of being rude.

Before I move on let me also say this commentary is not gospel because I labor under the same burden that you do in trying to discern what our hard working government wants in the way of paperwork. So I would not use this information to make decisions without seeking professional help from your CPA or other tax professional. I had to put that in because without it the lawyers get nervous. I would also like to say this commentary should be considered only a beginning of this important discussion. It would be nice to hear from those readers who have more or better information on government reporting requirements so this missive can be updated and reposted. Thanks again for reading and keep your head down as I used to say in the military.