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Fair tax treatment sought for gold investors

On June 25, Senator Mike Crapo, R-Idaho, entered a bill in the U.S. Senate entitled, “Fair Treatment for Precious Metals Investor Act.” 

The bill seeks to amend the Internal Revenue Code so that capital gains tax treatment for precious metals investments will be comparable to that for investments in stocks, bonds and mutual funds. 

Under current law, precious metals investments are penalized by being classified as “collectibles gains, which are taxed at the taxpayer’s top tax rate or 28 percent, whichever is lower. In contrast, stocks, bonds and mutual funds that are held for more than one year are currently taxed at the lower of the taxpayer’s top tax rate or 15 percent.

The long arm of the banking and financial services industry can be detected in current tax law for precious metals.  People who own precious metals tend to be longer term holders that do not generate so many brokerage fees compared to investors in paper assets. That explains the interest in the banking and financial services industry in penalizing anyone who wants to own precious metals.

The lobbyists for the banking and financial services industry also had similar results with making it more difficult to own a precious metals Individual Retirement Account than a regular IRA, but that is a discussion for another time.

I don’t know how likely it is that this bill will be enacted, either by itself or by being amended onto other legislation that is enacted. Bills sponsored by members of the minority party in Congress get less attention than those brought up by legislators from the majority party. To really improve chances for action, you normally want a bill to be introduced, or at least co-sponsored, by the chair of the committee to which the bill is assigned. 

The bill is written to exclude precious metal coins and ingots, as defined in the bill, from being classified as collectibles for capital gains tax purposes.

Even if this bill eventually becomes law, it does not automatically cover all precious metals coins and ingots. Here is what would qualify for the lower capital gains tax treatment:

• U.S. gold, silver and platinum American Eagles
• Coins issued under the laws of any state (I have not researched the definition of state, but believe this to apply to states of the United States)
• Gold, silver, platinum, or palladium coins or ingots of fineness equal to or exceeding the purity required for metals to be delivered in satisfaction of a regulation futures contract. That means that gold coins (and ingots) would have to have a minimum purity of .995, silver at least .999 pure, and platinum and palladium would have to be at least .9995 pure.

There are a number of platinum ingots and many gold coins that, because of their lower purity, do not appear to qualify to be taxed at the lower capital gains tax rate. Among coins that look like they would still be taxed at the higher rate are U.S. 90 percent and 40 percent silver coins, all U.S. gold coins minted before 1986, British sovereigns, South African Krugerrands, American Arts gold medallions, all Mexican gold coins, French Roosters and other 20-franc coins, Swiss 20 francs and just about all world gold coins issued by nations to circulate as money.

Should this bill eventually become law, and it could take a few years, the differences in tax treatment between different coins and ingots could have a significant impact on buyer demand in the United States.  American Eagles and pure coins and ingots would almost certainly enjoy stronger demand while coins like those cited in the previous paragraph would lose part of their market.

In the current market, the bullion-priced coins that can be purchased closest to the intrinsic value of their metal content are all issues that would not qualify for the more favorable tax treatment.  Such a law could drive their premium levels even lower. If enacted, might this law reduce demand for popular collector/investor coins like Morgan and Peace silver dollars and Saint-Gaudens $20 gold pieces?  Only time will tell.


Patrick A. Heller writes a weekly column that appears on www.Numismaster.com.

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