There is an incredible amount of confusion and disinformation about the extent to which coin dealers are required to obtain customer information to use in submitting reports to the Internal Revenue Service (IRS) or other government agencies.
In my judgment, this fogginess is a deliberate marketing ploy by some dealers used to persuade customers away from purchasing low-margin bullion-priced merchandise and toward higher-margin numismatic coins, even though such items may be less suitable for the customer’s purposes.
I am not an attorney, so I am not rendering legal advice. In my previous career I was a Certified Public Accountant, but I am no longer licensed to practice that profession. In other words, if you have questions, you need to contact your tax adviser or the IRS for answers. However, as many of my dealer friends tell me, it turns out that most tax advisers and IRS personnel are not well versed on these regulations. As an alternative, coin dealers have obtained helpful information from the national trade association, the Industry Council for Tangible Assets (ICTA), whose website is http://www.ictaonline.org. (Another disclaimer: Since 2002, I have been the treasurer for ICTA and also a member of the board of directors.)
With those disclaimers aside, let me try to clarify what kinds of government reporting affects coin dealers above and beyond those requirements that apply to businesses in general.
The three main circumstances where dealers may be required to do extra paperwork or submit reports for compliance with governmental regulations are 1) the receipt of “cash” payments of large enough amounts in one or more related transactions where the dealer must comply with cash reporting regulations; 2) a minimal amount of extra in-house paperwork for purchases or sales above a threshold dollar amount where the affected coin dealer (which includes almost every dealer who handles any bullion-related transactions) must comply with anti-money laundering regulations; and 3) purchases from non-corporate sellers of a limited list of precious metal coins and ingots in large enough quantities that the dealer needs to submit the IRS Form 1099-B.
Cash reporting regulations. There are two elements in the cash reporting regulations. First, the basic rule is that when someone makes cash payments totaling more than $10,000 in a single or in related transactions, the dealer receiving such payments has to submit Form 8300 Report of Cash Payments Over $10,000 Received in a Trade or Business. Among the tricky parts is that cash includes more than just the Federal Reserve Notes in your wallet. It also includes traveler’s checks and money orders and bank instruments like cashier’s checks of individual amounts of $10,000 or less (bank originated instruments in excess of $10,000 need not be reported by a dealer as the issuing institution had to already report it to the IRS). Another tricky part has to do with related transactions. If a married couple were to come in to make purchases within a short time frame, paying “cash” (as defined in the IRS regulations), and totaling more than $10,000, the dealer is required to add these transactions together to submit Form 8300 to the IRS. Related transactions can also include multiple transactions by the same person and two or more transactions by people with other family relationships, or even friends or co-workers.
The IRS receives so many 8300 forms that there is no practical way for any particular form to flag extra attention once the IRS receives it. A story I was told is that when the Soviets were paying CIA agent Aldrich Ames to spy against his own country, the Russians properly submitted the required 8300 forms. These were not detected by investigators until after Ames was arrested and charged.
The second part of cash reporting regulations has to do “suspicious activities.” While many financial institutions are required to submit Suspicious Activity Reports (SARs), coin dealers are not yet required to do so. However, coin dealers are encouraged to voluntarily file such reports if any of a variety of situations arise (see http://www.fincen.gov for more information), and it may be prudent for the dealer to do so.
The SAR is submitted to the Treasury Department’s Financial Crimes Enforcement Network on FinCEN Form 109 Suspicious Activity Report by Money Service Businesses. When the government receives an SAR, it is not just filed. Instead, it is effectively a criminal complaint that starts an investigation of the customer. It absolutely would bring on a greater degree of scrutiny of a customer’s financial activities.
Anti-money laundering (AML) regulations. Section 352 of the USA Patriot Act of 2001, for which regulations were adopted about five years ago, requires coin dealers to be on the lookout for possible terrorist activities. Any coin dealer who does more than a nominal amount of purchases and sales of “bullion-related” coins and ingots (including most US $20 and $10 gold coins) with the public over the course of a 12 months period is subject to complying with these regulations. This means that the dealer is required to have a formal anti-money laundering compliance program, a designated compliance officer, annual training of all employees who deal with customers, and an annual audit of the dealer’s compliance with the program.
I suspect that there are many coin dealers who have not established their compliance programs, erroneously thinking that they do not meet the threshold amounts of “bullion” transactions. But, once a dealer meets the threshold quantities for becoming subject to these regulations, it pretty much means that the dealer is permanently required to comply with these regulations.
In complying with anti-money laundering regulations, dealers may be required to obtain the name of all customers engaging in cash transactions above a threshold dollar amount, no matter whether buying or selling. What I have heard is that the AML compliance programs of most dealers have a threshold of $3,000 above which they must obtain this customer information. My own company, because of its higher volume and larger average transaction size, has a $5,000 threshold.
Dealers do not file any additional forms with any government agency under AML regulations. However, dealers are required to have the information available should an IRS agent come to their premises to check for transactions above the threshold amounts.
IRS Form 1099-B reporting regulations. The IRS proposed regulations in the early 1980s to require coin dealers to report certain purchases from non-corporate sellers. It took nine years for the IRS to finally pin down reporting thresholds. During this time, significant lobbying by ICTA succeeded in eliminating reporting requirements for small transactions (see IRS Revenue Procedure 92-103).
The final regulations come from the perspective of requiring brokers to report stock and commodity transactions, where the broker facilitates a transaction between a seller and buyer but does not take title to the assets. The IRS expanded the definition of a broker to include coin dealers, even those buying and selling from their own inventory and not acting as a broker. However, in establishing regulations from this angle, the result for coin and bullion dealers was that the reporting requirements covered extremely few items, and then only in sizable quantities—only items (of sufficient quantity) that could be potentially deliverable to fulfill commodity contracts on existing or approved exchanges.
Here are the only items listed by the IRS in Rev. Proc. 92-103 as requiring submission for Form 1099-B, and the minimum threshold quantities that must be sold in a single or related transactions before the form must be filed:
|Item||Minimum Fineness||Minimum Reportable Amount|
|Gold Bars||0.995||Any size bars totaling 1 kilogram (32.15 troy oz.) or more|
|Silver Bars||0.999||Any size bars totaling 1,000 troy oz. or more|
|Platinum Bars||0.9995||Any size bars totaling 25 troy oz. or more|
|Palladium Bars||0.9995||Any size bars totaling 100 troy oz. or more|
|1 oz. Gold Maple Leaf||as minted||25 1-oz. coins|
|1 oz. Gold Krugerrand||as minted||25 1-oz. coins|
|1 oz. Gold Mexican Onza||as minted||25 1-oz. coins|
|US 90% Silver Coins||as minted||Any combination of dimes, quarters, or half dollars totaling $1,000 face value or more|
If an item is not on this list, sales of it does not need a Form 1099-B to be filed, no matter how large the quantity!
There is some ambiguity in the regulations whether the ingots are required to be the actual minimum size required for delivery against a commodity contract or whether a mixture of smaller size ingots that total more than the minimum ounces required for a contract are also sufficient to call for submission of Form 1099-B. ICTA has advocated the conservative position of recommending that coin dealers report any mixture of smaller ingots that, combined, meets or exceeds the minimum contract size.
The result of defining reportable transactions so narrowly is that relatively few 1099-B forms ever need to be submitted. If someone comes to my company to sell us 20 Krugerrands, 10 Gold Maple Leafs, $500.00 face value of US 90% Silver Coin, and 700 ounces of pure Silver Ingots, we don’t need to submit any paperwork to the IRS. The IRS still wants to see the transaction on the seller’s tax return, but it is the seller’s responsibility to collect and report this information.
There are many bullion-priced products available that are not reportable on Form 1099-B. In my opinion, any coin dealer who tries to steer a customer away from all bullion coins and ingots and into numismatic coins because “you can avoid government reports when you sell” is either lying or incompetent, or both. Either way, that would be a sign to me of a dealer who probably does not deserve your patronage.
By the way, if you are thinking about conducting a transaction with a coin dealer who appears to be blatantly ignoring compliance with the regulations I have described in this column, consider that a warning sign of a dealer to perhaps avoid. If the IRS gets after this dealer (and there are several coin dealers who have done prison time for violating one or more of these regulations), they will almost certainly be scrutinizing that dealer’s customers as well.
Financial privacy from the US government has largely disappeared. While it bothers me, that is pretty much the environment we face today. At least precious metals buyers are not subject to more invasive reporting requirements as imposed in other countries. As I understand it, though it is legal for people to purchase precious metals in Australia and Canada, the dealers making sales may be required to obtain identification of all buyers. Pray that it does not get that bad in the US.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.