Tax lots for gold ounces

Discussion of the Gold portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
User avatar
williswine
Associate Member
Associate Member
Posts: 49
Joined: Mon Sep 13, 2010 6:23 pm

Tax lots for gold ounces

Post by williswine » Thu Apr 02, 2020 5:34 pm

For mutual funds, IRS pub 550 has a rule in place for specific identification of shares. Specifically:
Specific share identification. If you ade-
quately identify the shares you sold, you can
use the adjusted basis of those particular
shares to figure your gain or loss.
You will adequately identify your mutual
fund shares, even if you bought the shares in
different lots at various prices and times, if you:
  1. Specify to your broker or other agent the
    particular shares to be sold or transferred
    at the time of the sale or transfer, and
  2. Receive confirmation in writing from your
    broker or other agent within a reasonable
    time of your specification of the particular
    shares sold or transferred.
You continue to have the burden of proving
your basis in the specified shares at the time of
sale or transfer.
Is there anything of the sort for bullion purchases?

For example, I buy a few gold ounces (rather than gold coins or gold ETFs) from Perth Mint at some price P. I later buy more at some price P'. I could consider I now have two "lots" at two different prices P and P'. I call them to sell a portion. Am I then able to report that I sold part of any of these two lots, e.g. a portion of the gold purchased at price P and keep the rest? If so, is there any rule like items 1 and 2 above applying to gold bullion? I am not aware of any but maybe one of you is?
Libertarian666
Executive Member
Executive Member
Posts: 5994
Joined: Wed Dec 31, 1969 6:00 pm

Re: Tax lots for gold ounces

Post by Libertarian666 » Thu Apr 02, 2020 6:53 pm

I dimly recall that Harry Browne said you could tell a Swiss bank to sell ounces purchased at a particular time and get their agreement that they had done that, but I don't know whether Perth Mint will do that.

If not, you should be able to use use FIFO, LIFO, or average cost.

Note: not tax advice, consult with your accountant, etc.
User avatar
williswine
Associate Member
Associate Member
Posts: 49
Joined: Mon Sep 13, 2010 6:23 pm

Re: Tax lots for gold ounces

Post by williswine » Thu Apr 02, 2020 11:17 pm

Thank you Libertarian666. I don't know how Swiss banks do and guess I won't ever know myself.

I understand Perth Mint would sell per item 1 if asked but wouldn't confirm the specification per item 2. For them, a client owns a number of ounces and the mint sells from that "pot" then confirms how many ounces were sold at what price without acknowledging then when the sold ounces were purchased. That is my understanding of how the offline PMDP program works. I don't know whether the online PMDO progam would allow items 1 and 2 but would be interested to know. Perhaps ahrunforthehills or Sophie know?

I can't find in pub 550 anything that caters specifically to collectibles the way it does to stocks (including mutual funds) and bonds. Yes, pub 550 considers gold to be a "capital asset" that is "investment property", just like stocks and bonds but pub 550 discusses specID, FIFO and average cost basis in the context of "shares" of securities (stocks, bonds, or mutual funds as far as specID is concerned). As gold is considered a collectible rather than a security, logically there is no "share" concept applying to it, unless in the context of gold ETFs (and ETFs aren't discussed either). That makes me wonder if some ruling exists that would clarify some of what pub 550 or other publications like pub 551 do not explicitly discuss.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9422
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Tax lots for gold ounces

Post by vnatale » Thu Apr 02, 2020 11:37 pm

williswine wrote:
Thu Apr 02, 2020 11:17 pm
Thank you Libertarian666. I don't know how Swiss banks do and guess I won't ever know myself.

I understand Perth Mint would sell per item 1 if asked but wouldn't confirm the specification per item 2. For them, a client owns a number of ounces and the mint sells from that "pot" then confirms how many ounces were sold at what price without acknowledging then when the sold ounces were purchased. That is my understanding of how the offline PMDP program works. I don't know whether the online PMDO progam would allow items 1 and 2 but would be interested to know. Perhaps ahrunforthehills or Sophie know?

I can't find in pub 550 anything that caters specifically to collectibles the way it does to stocks (including mutual funds) and bonds. Yes, pub 550 considers gold to be a "capital asset" that is "investment property", just like stocks and bonds but pub 550 discusses specID, FIFO and average cost basis in the context of "shares" of securities (stocks, bonds, or mutual funds as far as specID is concerned). As gold is considered a collectible rather than a security, logically there is no "share" concept applying to it, unless in the context of gold ETFs (and ETFs aren't discussed either). That makes me wonder if some ruling exists that would clarify some of what pub 550 or other publications like pub 551 do not explicitly discuss.
I "Binged it" and found this: https://www.journalofaccountancy.com/is ... tions.html

There does not seem to be any mention of "specific identification" in this article which leads me to believe that it is not found in this article then "specific identification" and "gold" is not a reality. Those who write for the Journal of Accountancy would not miss something as basic as that if it was a reality.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
williswine
Associate Member
Associate Member
Posts: 49
Joined: Mon Sep 13, 2010 6:23 pm

Re: Tax lots for gold ounces

Post by williswine » Fri Apr 03, 2020 12:55 am

This is an interesting article and I knew about it Vinny but it focuses on promoting gold investing in tax-deferred accounts rather than on the details of cost basis reporting for gold accumulated over time in taxable accounts. I've "binged" ;) the Net over this and am yet to find anything close to what I'd like to know. I do believe that if there's something out there, it is part of a ruling, which isn't easy to research.

I recall a post from Sophie wondering how she would report sales out of her PMDO account. We are facing the same dilemma, as are those of us buying gold coins since there is no way to prove a given sale is a sale of coins acquired at a specific date: all coins look the same! FIFO currently seems to me to be the best course of action short of working with a tax pro, enrolled agent or asking the IRS. I also don't think I saw anything on this in the book Craig and MediumTex wrote. It puzzles me.
Libertarian666
Executive Member
Executive Member
Posts: 5994
Joined: Wed Dec 31, 1969 6:00 pm

Re: Tax lots for gold ounces

Post by Libertarian666 » Fri Apr 03, 2020 6:43 am

williswine wrote:
Fri Apr 03, 2020 12:55 am
This is an interesting article and I knew about it Vinny but it focuses on promoting gold investing in tax-deferred accounts rather than on the details of cost basis reporting for gold accumulated over time in taxable accounts. I've "binged" ;) the Net over this and am yet to find anything close to what I'd like to know. I do believe that if there's something out there, it is part of a ruling, which isn't easy to research.

I recall a post from Sophie wondering how she would report sales out of her PMDO account. We are facing the same dilemma, as are those of us buying gold coins since there is no way to prove a given sale is a sale of coins acquired at a specific date: all coins look the same! FIFO currently seems to me to be the best course of action short of working with a tax pro, enrolled agent or asking the IRS. I also don't think I saw anything on this in the book Craig and MediumTex wrote. It puzzles me.
Yes, all gold coins of the same type and mint date look the same. Gold bars, by contrast, have individual serial numbers, so you could sell a bar with serial number xxxxxx that was bought on a specific date. But only if the depository would let you choose a specific bar, or if you had them in a safe deposit box.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Tax lots for gold ounces

Post by dualstow » Fri Apr 03, 2020 7:13 am

I have electronic and paper receipts. I figure if the IRS, currently tiny and overstretched, ever does take an interest, I’ll have proof of purchase date and price.
RIP Marcello Gandini
Libertarian666
Executive Member
Executive Member
Posts: 5994
Joined: Wed Dec 31, 1969 6:00 pm

Re: Tax lots for gold ounces

Post by Libertarian666 » Fri Apr 03, 2020 7:40 am

dualstow wrote:
Fri Apr 03, 2020 7:13 am
I have electronic and paper receipts. I figure if the IRS, currently tiny and overstretched, ever does take an interest, I’ll have proof of purchase date and price.
If you use FIFO that should be sufficient. For specific lot identification, it's hard to say unless the lots are somehow distinct from one another, e.g., with bar numbers.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Tax lots for gold ounces

Post by dualstow » Fri Apr 03, 2020 8:29 am

I probably will use FIFO, but just out of curiosity, if I’ve got a bunch of coins, many of them the same kind and the same year, but bought in different years and different prices....I can’t specify? That is have to use FIFO?
I thought I would only get in trouble if I tried to sell the same coin (date & price) twice. Or an eleventh one if I only have a record of 10.

Compared to a bunch of coins stored at Perth, it’s all so small, it probably does not matter.
RIP Marcello Gandini
Libertarian666
Executive Member
Executive Member
Posts: 5994
Joined: Wed Dec 31, 1969 6:00 pm

Re: Tax lots for gold ounces

Post by Libertarian666 » Fri Apr 03, 2020 8:53 am

dualstow wrote:
Fri Apr 03, 2020 8:29 am
I probably will use FIFO, but just out of curiosity, if I’ve got a bunch of coins, many of them the same kind and the same year, but bought in different years and different prices....I can’t specify? That is have to use FIFO?
I thought I would only get in trouble if I tried to sell the same coin (date & price) twice. Or an eleventh one if I only have a record of 10.

Compared to a bunch of coins stored at Perth, it’s all so small, it probably does not matter.
I just use FIFO for all coins or bars of the same type, so I don't have to worry about this.

But my understanding is that in order to specify a coin, it has to be identifiable as being different from your other coins. E.g., if you have 10 coins with different dates and you have receipts showing the mint dates, you can specify which one you are selling. But if you have coins with the same dates, or your receipts don't show the mint dates, I don't think you can do that. An exception to the mint date requirement might be if you bought coins in a particular year, in which case they obviously couldn't have dates after that year.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9422
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Tax lots for gold ounces

Post by vnatale » Fri Apr 03, 2020 8:54 am

Libertarian666 wrote:
Fri Apr 03, 2020 8:53 am
dualstow wrote:
Fri Apr 03, 2020 8:29 am
I probably will use FIFO, but just out of curiosity, if I’ve got a bunch of coins, many of them the same kind and the same year, but bought in different years and different prices....I can’t specify? That is have to use FIFO?
I thought I would only get in trouble if I tried to sell the same coin (date & price) twice. Or an eleventh one if I only have a record of 10.

Compared to a bunch of coins stored at Perth, it’s all so small, it probably does not matter.
I just use FIFO for all coins or bars of the same type, so I don't have to worry about this.

But my understanding is that in order to specify a coin, it has to be identifiable as being different from your other coins. E.g., if you have 10 coins with different dates and you have receipts showing the mint dates, you can specify which one you are selling. But if you have coins with the same dates, or your receipts don't show the mint dates, I don't think you can do that. An exception to the mint date requirement might be if you bought coins in a particular year, in which case they obviously couldn't have dates after that year.
That all seems like a quite reasonable understanding.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Tax lots for gold ounces

Post by dualstow » Fri Apr 03, 2020 9:18 am

I agree. Thanks.
RIP Marcello Gandini
User avatar
williswine
Associate Member
Associate Member
Posts: 49
Joined: Mon Sep 13, 2010 6:23 pm

Re: Tax lots for gold ounces

Post by williswine » Sun Apr 05, 2020 2:38 pm

Right, Libertarian666: thank you, I think you nailed it and so to go back to my original example, only FIFO seems to apply. SpecID would definitely apply to ETFs (assuming the two items are followed) and depending on interpretation of pub 550 likely to bars or coins bought all at once in a given year with receipt. I still think pub 550 should be either more explicit or more generic in the way it describes the different methods but that is way beyond our control!
Post Reply