The Tax Benefits Circulating Silver Dollars

[RogueBeeKeeper]

Hey guys, I'm new to this site but I have been stacking for years. I work/live in Utah where we passed the specie legal tender act. I actually work for the people that wrote/lobbied for it. I hope that I can add to the community in a significant way.

There is a perk to buying the more expensive One Dollar Silver Eagles made by the U.S mint (if you are a U.S citizen of course). Let's say that you have one hundred ounces/dollars of silver eagles. If you were to purchase them for $2,000 USD and were to hang on to them until they were worth say... $20,000 then that would be considered a x10 gain. If you were to sell those same coins in the U.S then the IRS would want to charge you as much as 28% on the $18,000 difference. There is a way around this.

If you spend your $100 silver eagle dollars at the $20,000 Federal Reserve Note value then it doesn't matter at what price your purchased the eagles for because you are spending legal tender dollars. The seller would simply need to accept the dollars in the form of silver coin. By definition there can not be a tax of appreciation on legal tender silver and the courts have repeatedly backed this up. Any other type of silver transaction may be subject to capital gains within the United States.

Full Disclosure: I work for a nonprofit group called the United Precious Metals Association where they offer gold/silver dollar denominated accounts and zero buy/sell spreads. Members can pay each other in a closed-loop system with gold or silver dollars. I'll probably post about this some other time when I'm less brand new.

 

[Jislizard]

If I worked in the US...

Could I ask to be paid in Legal Tender Specie and work for $1/hour. (equivalent to whatever a Silver Eagle is worth) and then only pay tax on $1?

 

[RogueBeeKeeper]

If I worked in the US...

Could I ask to be paid in Legal Tender Specie and work for $1/hour. (equivalent to whatever a Silver Eagle is worth) and then only pay tax on $1?

Yes and No. The only case on this was a few years ago. A contractor was paying his employees $50 each every month in gold dollars (one ounce of gold) in order to avoid paying a withholding tax. The IRS took him to court and he lost over tax evasion because his employees were immediately turning the $50 into cash. The gold dollars can be circulated separately however. It is best to use them for everything except a repetitive wage so it is all post-tax dollars.

 

[Ipv6Ready]

Cannot see a real benefit. Too many gotcha has to line up.

Ie silver has to go up 10x (big if), and need to find a dodgy buyer.

Surely the dodgy buyer would want to get paid for this expertise?

Probalably easier to sell it it on eBay or forums and get a premium and not pay any taxes.

Both are illegally avoiding tax but the eBay and forum methods you end up with a premium the legal tender method you end up paying a commission.

Of course there will always be a few say be small percentage of people who have access to businesses to mask the "cost" but not many.

 

[RogueBeeKeeper]

Cannot see a real benefit. Too many gotcha has to line up.

Ie silver has to go up 10x (big if), and need to find a dodgy buyer.

Surely the dodgy buyer would want to get paid for this expertise?

Probalably easier to sell it it on eBay or forums and get a premium and not pay any taxes.

Both are illegally avoiding tax but the eBay and forum methods you end up with a premium the legal tender method you end up paying a commission.

Of course there will always be a few say be small percentage of people who have access to businesses to mask the "cost" but not many.

The benefit is is circulation. All one needs to do is find someone willing to take payment in silver coin. True, this tax could be avoided by other means, however, my point is that the silver dollar coins are the only ones that are legal tender in the U.S so they can survive the scrutiny if you were 'caught' circulating them.

 

[Jislizard]

Cannot see a real benefit. Too many gotcha has to line up.

Ie silver has to go up 10x (big if), and need to find a dodgy buyer.

Surely the dodgy buyer would want to get paid for this expertise?

Probalably easier to sell it it on eBay or forums and get a premium and not pay any taxes.

Both are illegally avoiding tax but the eBay and forum methods you end up with a premium the legal tender method you end up paying a commission.

Of course there will always be a few say be small percentage of people who have access to businesses to mask the "cost" but not many.

The benefit is is circulation. All one needs to do is find someone willing to take payment in silver coin. True, this tax could be avoided by other means, however, my point is that the silver dollar coins are the only ones that are legal tender in the U.S so they can survive the scrutiny if you were 'caught' circulating them.

Bernard von NotHaus didn't have any legal tender protection for his circulating rounds but from what I understand the main issue was that they looked too much like old circulating money and the way they were spent was a bit deceptive. Other than that he didn't appear to be breaking many laws.

 

[Ipv6Ready]

The benefit is is circulation. All one needs to do is find someone willing to take payment in silver coin. True, this tax could be avoided by other means, however, my point is that the silver dollar coins are the only ones that are legal tender in the U.S so they can survive the scrutiny if you were 'caught' circulating them.

Im not doubting you as there can be circumstances where it might be legal, ie the seller paid $200 silver eagles for $20,000 worth of gold, but and huge but how would the seller survive scrutiny if IRS questions the "seller" and he says oh he sold it the $100 silver eagle dollars for $20,000 spot value of gold.

Or more to the point, what seller in normal circumstances would accept $200 of silver dollars at spot for a value of $20,000, if there is a cost of doing the business ie the seller need to convert it to dollars to pay for the product and or services, and be a party to criminal activity without getting compensated.

I am interested, just for interest sake, nor am I likely to ever go to Utah, but I think the people advocating these things have to think it through. I mean in Utha how prevalent is it for people or shops to accept silver or gold for goods and services. Say I walked into Taco Bell would the cashier accept a Perth mint silver at spot, actually would they accept Silver eagle at spot?

 

[Jislizard]

In the UK they won't even accept a legal tender silver 20 face value coin (about 7 worth of silver) in the shops or even the bank. Canadians had trouble spending the silver $20 coins and had to take them to the bank etc.

I think you would have more luck with the 90% silver pre 64 currency, that is regularly traded above spot value but can still be redeemed for face value, and is far harder to monitor.

 

[Ipv6Ready]

I think you would have more luck with the 90% silver pre 64 currency, that is regularly traded above spot value but can still be redeemed for face value, and is far harder to monitor.

I am more inclined to believe the junk silver is traded above spot, but imagine someone walked into a car dealership with wheelbarrow of silver quarters lol (ps I am taking a view that if silver is worth $200 an ounce than a secondhand daily driver would cost $100,000).

 

[bron.suchecki]

This scheme will not work because all tax laws treat "legal tender" coins which have a market value above their face value as barter transactions and thus impute the value of the transaction at the market value of the coin and capital gains tax etc is calculated based on that market value. If this was not the case then rare collectible coins would already be being used for this sort of scheme. Once a coins market value is above its face value, it is no longer "money" as far as tax authorities are concerned.

 

[Big A.D.]

So how do you get money out of the "closed loop"?

I can see how you can get money in and trade within the "metals economy" at, say, five silver cents per fiat dollar but that's only one half of the trade since you're still pegging the metal value to a fiat value. Sooner or later you're going to have to convert some metal back to fiat and to do that you need to revalue it from the legal tender value to the commodity value.

 

[Ipv6Ready]

So how do you get money out of the "closed loop"?

I can see how you can get money in and trade within the "metals economy" at, say, five silver cents per fiat dollar but that's only one half of the trade since you're still pegging the metal value to a fiat value. Sooner or later you're going to have to convert some metal back to fiat and to do that you need to revalue it from the legal tender value to the commodity value.

just like any scheme as long as spot stays the same or climbs higher, but you'd hate to be the person holding silver if the value drops significantly and you need cash.

 

[RogueBeeKeeper]

This scheme will not work because all tax laws treat "legal tender" coins which have a market value above their face value as barter transactions and thus impute the value of the transaction at the market value of the coin and capital gains tax etc is calculated based on that market value. If this was not the case then rare collectible coins would already be being used for this sort of scheme. Once a coins market value is above its face value, it is no longer "money" as far as tax authorities are concerned.

This isn't true anymore. Especially in Utah since 2011. Numismatic coins like you mentioned are treated differently, however, current American Gold Eagles and Silver Eagles are considered legal tender by the courts and are exempt from a capital gains tax. Every time the IRS brings this issue to court they lose. They may hold that opinion anyway though.

http://upma.org/#merchants

 

[bron.suchecki]

Especially in Utah since 2011. Numismatic coins like you mentioned are treated differently, however, current American Gold Eagles and Silver Eagles are considered legal tender by the courts and are exempt from a capital gains tax. Every time the IRS brings this issue to court they lose. They may hold that opinion anyway though.

I thought the various state laws on this issue were just about removing state level taxes, the Federal IRS rules would still be in effect. If this was so clear cut, why is anyone buying gold ETFs and paying 28% tax when they can just buy coins? Do you have a link to a court judgement against the IRS, I would be very interested in it. It certainly isn't the situation in Australia as I understand it and has implications for our local legal tender bullion coins.

 

[RogueBeeKeeper]

Especially in Utah since 2011. Numismatic coins like you mentioned are treated differently, however, current American Gold Eagles and Silver Eagles are considered legal tender by the courts and are exempt from a capital gains tax. Every time the IRS brings this issue to court they lose. They may hold that opinion anyway though.

I thought the various state laws on this issue were just about removing state level taxes, the Federal IRS rules would still be in effect. If this was so clear cut, why is anyone buying gold ETFs and paying 28% tax when they can just buy coins? Do you have a link to a court judgement against the IRS, I would be very interested in it. It certainly isn't the situation in Australia as I understand it and has implications for our local legal tender bullion coins.

Yes, there are court cases against the IRS on the issue of coins being circulated. Circulation is key when it comes to the 28% tax, if you redeem a silver eagle for cash at a higher price than you paid then there is still arguably a capital gain. If you spend a dollar silver coin as a dollar with a silver clause then you are fine. It functions as a legal alternative currency within the U.S. The United Precious Metals Association in Utah did a video with all the court cases in it last year:

https://www.youtube.com/watch?v=i4eBSD3GDrA

 

[Ipv6Ready]

Especially in Utah since 2011. Numismatic coins like you mentioned are treated differently, however, current American Gold Eagles and Silver Eagles are considered legal tender by the courts and are exempt from a capital gains tax. Every time the IRS brings this issue to court they lose. They may hold that opinion anyway though.

I thought the various state laws on this issue were just about removing state level taxes, the Federal IRS rules would still be in effect. If this was so clear cut, why is anyone buying gold ETFs and paying 28% tax when they can just buy coins? Do you have a link to a court judgement against the IRS, I would be very interested in it. It certainly isn't the situation in Australia as I understand it and has implications for our local legal tender bullion coins.

Not trying to be difficult but I can see some strange anomaly arising that would pique the IRS

If true, one would expect Utah to be the physical metal trading hub rivalling Shanghai or at the very minimum a huge tax minimisation centre for trades in goods that gets taxed at state and federal level on the value.

ie buy and sell properties, stating only US $50 Gold legal tender coins accepted for exchange. Houses would be valued at $10,000 in USD $50 legal tender gold coins.

Surely that would mean the seller could claim a capitol loss if bought 2010 at $220,000 and the buyer would pay minimal state taxes as it is worth only $10,000

Having wrote the above strangers things have happened in real life even with very credible precedent in UK and gold VAT, Australia only just plugged the Scrap GST whole early this year.

 

[Big A.D.]

ie buy and sell properties, stating only US $50 Gold legal tender coins accepted for exchange. Houses would be valued at $10,000 in USD $50 legal tender gold coins.

Surely that would mean the seller could claim a capitol loss if bought 2010 at $220,000 and the buyer would pay minimal state taxes as it is worth only $10,000

But what happens when the person who bought the house for $10,000 goes to sell it a few years later to someone else who can't/doesn't want to pay in $50 gold eagles and has to accept $240,000 in fiat?

$230,000 capital gain.

 

[Ipv6Ready]

ie buy and sell properties, stating only US $50 Gold legal tender coins accepted for exchange. Houses would be valued at $10,000 in USD $50 legal tender gold coins.

Surely that would mean the seller could claim a capitol loss if bought 2010 at $220,000 and the buyer would pay minimal state taxes as it is worth only $10,000

But what happens when the person who bought the house for $10,000 goes to sell it a few years later to someone else who can't/doesn't want to pay in $50 gold eagles and has to accept $240,000 in fiat?

$230,000 capital gain.

Well I guess you just have to wear the capitol gain or not sell it to them. Hence in my original question to the OP ->

Too many gotcha has to line up.

 

[RogueBeeKeeper]

Especially in Utah since 2011. Numismatic coins like you mentioned are treated differently, however, current American Gold Eagles and Silver Eagles are considered legal tender by the courts and are exempt from a capital gains tax. Every time the IRS brings this issue to court they lose. They may hold that opinion anyway though.

I thought the various state laws on this issue were just about removing state level taxes, the Federal IRS rules would still be in effect. If this was so clear cut, why is anyone buying gold ETFs and paying 28% tax when they can just buy coins? Do you have a link to a court judgement against the IRS, I would be very interested in it. It certainly isn't the situation in Australia as I understand it and has implications for our local legal tender bullion coins.

Not trying to be difficult but I can see some strange anomaly arising that would pique the IRS

If true, one would expect Utah to be the physical metal trading hub rivalling Shanghai or at the very minimum a huge tax minimisation centre for trades in goods that gets taxed at state and federal level on the value.

ie buy and sell properties, stating only US $50 Gold legal tender coins accepted for exchange. Houses would be valued at $10,000 in USD $50 legal tender gold coins.

Surely that would mean the seller could claim a capitol loss if bought 2010 at $220,000 and the buyer would pay minimal state taxes as it is worth only $10,000

Having wrote the above strangers things have happened in real life even with very credible precedent in UK and gold VAT, Australia only just plugged the Scrap GST whole early this year.

They technically could claim a loss, however, that would not be best practice and would likely get scrutiny from the IRS even if they were technically correct. Big A.D pointed out the problem with that even if you got away with it.

Not many people are taking advantage of Utah's legal tender laws yet, I suspect that this is largely due to ignorance of the law and/or fear of the IRS.

Best practice is to not declare losses when using $50 gold pieces. You acknowledge the additional value, however, it can be treated as a separate legal currency in the U.S so at the very least there aren't capital gains when the Federal Reserve Note depreciates against it.

 

[Silvermario]

reading through this law, it doesn't say much to the effect of protecting you from the IRS. https://le.utah.gov/xcode/Title59/Chapter1/C59-1-P15_1800010118000101.pdf It says you can use the Silver coins as legal tender if they are minted by the US, or that if Congress wants to allow bullion to be used as legal tender, then it is legal tender in the state. This is dumb, if the Congress of the US made gold or silver bullion legal tender, then it would be legal tender, the state doesn't need to make a law allowing it. Called the supremacy Clause. http://law2.umkc.edu/faculty/projects/ftrials/conlaw/preemption.htm

Also, there is the section in there about a nonrefundable tax credit pertaining to exchanging one form of legal tender for another. https://le.utah.gov/xcode/Title59/Chapter10/59-10-S1028.html It has to do with State of Utah income taxes, not Federal IRS income tax. The IRS still wants their money if you try to buy $20,000 worth of stuff with $100 worth of face value coins that you paid $2000 for (using the OP example). Thats a sale, or trade, or exchange, in which you profited $18,000. That is taxable income. https://www.irs.gov/publications/p544/ch02.html talks about how gold and silver are assets and subject to income tax. The Utah law would not protect you from federal prosecutors. See supremacy clause above.

Please do not follow this advice. You will go to jail.