Reportable Bullion & Cash Transactions

The question of what is reportable when buying or selling precious metals is the most popular of all investor questions today at California Numismatic Investments (GoldDealer.com). And this commentary is our third revision at understanding what the government had in mind when “reporting” came up on the radar screen more than 30 years ago.

Reportable bullion 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? The reason might be that these mystical directions while holding sway over dealers are a poorly written mess which should have been avoided or at least provided with updating options. Instead this bureaucratic process produces mountains of paper work which may have been relevant years ago but today does not include America’s most popular bullion choices. So over time these rules were asked to do more than intended without further oversight or revision. What we have today is a bottom up application of government thinking without the required rule maker and so disputes might become a nightmare.

And with mistrust of government reaching new highs these rules become more important for two new reasons:

First, the majority of Americans are looking for simple privacy and not trying to skirt the currency reporting laws. Gold has always been the most private investment and the use of “no-name” invoices and cash in smaller amounts is popular and legal. The quest for privacy is responsible for books like How to Be Invisible: A Step-By-Step Guide To Protecting Your Assets, Your Identity, And Your Life by J.J. Luna.

Second, the notion of independent storage of precious metals is getting publicity because of banking failures and zealous government oversight. Outside of bank storage was talked about in the early gold movement and even included ideas about out of country storage by pioneers like Harry Brown. Personally I think this is an overreaction because US banking oversight protects assets but some investors are not convinced.

When gold was once again made available to Americans in 1975 the 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 about such things even the banks. If you were given cash it was deposited into your business account but most of the time payments were made by check.

But when the Treasury began to get interested in what Middle America was doing with precious metals the “reporting” idea got more attention. Since that time both dealers and the public have come to believe these reporting requirements are an attempt by Uncle Sam to monitor the precious metals because the government saw them as a kind of unregistered security which is easy to buy and sell privately. I 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 because they had little interest in the individual investor.

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

1. Cash Reporting: If you bring in more than $10,000.00 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. 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 most national dealers because prior to these prosecutions cash was not a big deal. Today fines for violating Form 8300 rules could amount to $25,000.00.

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 $10,000.00 rule which shows the public is going through the learning curve when it comes to “reporting”. You can purchase anything you want for any amount – $10,000.00 or $10 million – and there are no dealer reporting requirements as long as you pay with a check or wire.

Let’s also consider what the government calls cash equivalents. If a consumer makes one purchase and pays with a number of smaller money orders and the sum exceeds $10,000.00 it is a reportable transaction. If on the other hand he makes a purchase and pays with a cashier’s check in excess of $10,000.00 it is not because if the consumer used cash to purchase the cashier’s check the bank has already filled out the form. And what about the customer who purchases $14,000.00 worth of bullion and provides the dealer with $8,000.00 in cash and a cashier’s check for the remaining $6,000.00? The dealer is required to fill out the form or be in violation of the $10,000.00 cash rule. So you can see how tracking down all these rules can be confusing.

The SAR (Suspicious Activity Report): I added these comments because well-known coin dealer Pat Heller rightly pointed out this area of government reporting is worth a close look. The SAR is still virtually unknown to the consumer but is the proverbial black hole of reporting. It raised its ugly head following the 9/11 attacks when the US rewrote many federal regulations and introduced the USA Patriot Act. Under the SAR provision the government requires financial institutions to report transactions that are or appear to be suspicious. Reporting suspicious behavior without judicial oversight is not a slippery slope but a vertical cliff used by the world’s most oppressive regimes and always presented as “necessary” because of extraordinary circumstances.

Without guidelines an honest customer who simply wants clarification about using cash over an extended period of time might qualify for a SAR. Many honest folks also want to use cash because it facilitates the transaction (no waiting for check clearance or bank verification). In this day and age some people don’t trust banks or dealers and who can blame them? They want the combination of privacy and immediate delivery because it can give them the added benefit of anonymity.

Now consider Raymond Gregson, Jr. thoughts about the Suspicious Activity Report: Even though coin dealers are defined as non-bank financial institutions, they are not “required” to file SARs, it is only recommended. Coin dealers may want to use this form if something happens which is not technically reportable but want to show reasonable compliance should the government ask questions about a particular cash transaction. Also, the SAR has been challenged in the courts, the first case was “Whitney National Bank vs. Karam, 306 F. Supp. 2d 678 (S.D. Tex. 2004).

Let’s also look at the way Form 8300 is structured: A customer brings in $8,000.00 in cash and walks away with product. This fellow may own a cash business or simply goes to the bank to withdraw cash on a regular basis because he wants complete privacy. This is entirely reasonable because owning gold bullion does present challenges when guarding against theft. He then shows up a month later and wants to do the same transaction. Is this reportable or not? In the old days some dealers used a Cash Transaction Log because they thought it was necessary to aggregate or keep track of cash transactions over a 12 month period.

Today this is not necessary and may pose privacy problems and so is not recommended. Form 8300 clearly states that the period of time between cash transactions is 24 hours so in the above $8,000.00 case the answer is simple: he could return with less than $10,000.00 and as long as the period of time between transactions exceeded 24 hours technically there is no reporting requirement. But if a dealer has one person coming in every 48 hours to buy bullion with $9,000.00 in cash or sell reportable bullion under the specified numbers the Suspicious Activity Report can be helpful in keeping his books transparent.

Here are a few of Gregson’s thoughts about related cash transactions: (1) Husband and wife are automatically related so if you are married and show up with more than $10,000.00 in cash claiming individual exception you will be handed a Form 8300. But if two people are just friends and the money does not come out of one pocket each person is allowed up to $10,000.00 without a form.

2. Bullion Products Reporting: I will get into specifics further down but for now understand that there are a limited number of reportable bullion products when sold in certain quantities. So the buying dealer will file Federal Form 1099B when key numbers are reached and like Federal Form 8300 the defined time period is also 24 hours. Now pay attention because the public usually misses this point: This 1099B rule only applies to what you as a consumer are selling and has nothing to do with what you purchase or how you pay for that purchase. Also note that the fine for a dealer failing to file Federal Form 1099B is $50.00 but fines involving Federal Form 8300 could be $25,000.00 so clearly the government sees cash reporting rules as more serious.

Because these rules are arbitrary 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 do not have it right and hard sell telemarketers use “reporting requirements” as a blunt club to “steer” investors into the worst choices while lining their pockets with ridiculous commissions.

Not long ago I received an email from a person who was told by a so called “IRA Specialist” that he should put proof gold Eagles into his IRA account and avoid regular issue gold Eagles because the latter was reportable and the former was not according to government rules. Well of course this is fiction and a wonderful case of “steering for profit” by a sleazy telemarketer but how many people do you think check those “expert” facts? I guarantee that most do not and so are led down the garden path by unscrupulous dealers who exploit these obscure rules.

And even if you are new to investing and do your own research there are questions which remain unanswered. Study these rules carefully and the first thing you will notice is that many are simply arbitrary. The US Gold Eagle is one of America’s favorite bullion coins and yet it is not reportable bullion because it did not exist when the rules were written. But similar bullion coins like the Canadian Maple Leaf or the South African Krugerrand were commonly traded in the 1970’s when the CFTC made up the physical rules and so are included today.

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

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

Further study of the reportable bullion list below will reveal its obvious lack of conscious intent. Some bullion product is listed but much of what is commonly accepted as bullion precious metal is missing and there is not a provision in these old rules to add new products as they come to the marketplace. I guarantee the government could have done a better job if its intent was invasion of your privacy and a “big brother” attempt at controlling the precious metals.

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 threw it in 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 who make a big deal out of this convoluted scheme are the conspiracy buffs who believe the grassy knoll theory. This is where the real paranoia began because they believe the government is looking in their window. And some respected dealers agree conceding that reporting requirements today are no big deal, but suppose the public really decided to get involved with gold? It is a small market and gold bullion coins or bars can be untraceable much like the old bearer bonds which were eliminated in the United States in the early 1980’s. If gold became really popular could the government use existing rules to create another “bearer bond” witch hunt?

To help sort out the situation and make more sense of a confused marketplace a few definitions will 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 or bars 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 reportable bullion products the rules can still be confusing because there are minimum size requirements. The good news here is that if the few 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 Internal Revenue Service wants in the way of paper work regarding reportable bullion. They are describing the paperwork 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 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 $10,000.00 in green cash or cash equivalent (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 and like I said they are sometimes used because folks don’t want to wait for their product. But when you provide a large cash payment to a precious metal dealer the government wants to be notified.

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 dealer “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 required to report the sale on Form 1099B. But here is where these rules go off the track if they are interpreted within the “conspiracy” framework instead of the more believable commodity flow or academic model.

What happens if a customer who purchased 30 Krugerrands decides to sell his dealer 10 coins in January, 10 coins in February, and 10 coins in March? Is this a reportable bullion transaction? Actually it is not reportable because Federal Form 1099B cites a specific 24 hour time frame.

In fact there is an extensive list of low premium gold bullion coins you can sell any time and in any quantity and the buying dealer is not required to report the sale: These stellar choices include the U.S. Gold Eagle, the Australian Kangaroo, the Austrian Philharmonic, the Chinese Panda, the British Britannia Series, and the Australian Lunar Series. If any dealer claims these gold bullion coins are reportable bullion when you sell make sure you have your hand on your wallet.

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. If you find by now that your head is spinning do not be alarmed and just read slower.

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 but let me play the devil’s advocate: What happens if a customer purchases a $1000 face bag and decides to sell back $500 face in January and $500 face in February. Has he skirted the letter of the law? And even if he has not is there some kind of dealer obligation? Again not according to the Federal Form 1099B 24 hour rule.

My friend and numismatic legal wizard Armen Vartian once claimed in a Coin World article that while $1000 face 90% silver bags are reportable the CFTC only named dimes, half dollars, and silver dollars but did not mention quarters!

The 1 ounce, 10 ounce and 100 oz silver bars are exempt when you sell as long as your total sale does not exceed 1000 ounces.

So a customer who accumulates fifteen 100 oz silver bars over time and sells them all at once will be handed Form 1099B. But if he sells nine 100 ounce bars in January and six in February there is no reporting according to the 24 hour rule.

All COMEX 1000 oz bars are reportable when you sell them to a precious metals dealer.

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, the Australian Platypus and the Australian Koala are exempt. Finally, palladium bullion coins like the Canadian Palladium Maple Leaf and the Russian Ballerina are exempt.

Dealer Payment Structuring – And by the way the consumer is not the only one subject to oversight rules: This from the Coin Dealer Newsletter (June 24, 2011): “ICTA is advising dealers, when making purchases from customers, not to accommodate or agree to pay any customer with more than one check per transaction. Repeatedly paying with more than one check could result in your bank closing your account, and you being accused of “illegal structuring”. In other words, this could be considered conspiracy to commit money laundering. When dealers are asked by customers to split up payments, it is sometimes to reduce the amount of each check to less than $10,000.00, which the customer then deposits or cashes on different days. An innocent accommodation to serve a customer now could create a big problem in the future for a coin dealer.”

I thought the size of the dealer’s check made no difference because it was deposited and so the money was easily traced through the customer’s bank. The idea that a seller could cash a smaller check or deposit these checks on different days to avoid tax considerations is now on the table. This warning from ICTA illustrates how far our Uncle Sam will go to make sure folks who still have jobs are paying so he can redistribute the national wealth in an equitable manner.

Gregson further elaborates about giving the customer several business checks under $10,000.00 when the purchase is over $10,000.00. This was put in a Washington Wire by ICTA because I had them do it. I ran across this same situation in Florida in a 2 week period. This has nothing to do with taxes and it is not a problem if the person deposits the checks. The problem comes in when you for example buy $18,000.00 in scrap and give the customer two $9,000.00 checks and they take both to your bank or their bank and cash one today and the other tomorrow or both at the same time. The bank is required to file a SAR on that situation because it appears that you are assisting your customer in structuring the transaction to avoid the reporting requirement at the bank. If they were to cash one $18,000.00 check, the bank files a Currency Transaction Report (CTR), but if they bring in two checks each for $9,000.00, issued as the same time, it appears that you are conspiring with the customer to avoid the CTR requirements. If the total transaction was $8,000.00 and you gave them two $4,000.00 checks, that’s not really a problem because even if they cash them, it does not avoid any reporting requirement.

For coin dealers the required government paperwork is not complicated if you understand the rules. But extra work is required and to move the conversation forward precious metal dealers should support ICTA (www.ictaonline.org). So the pittance for dealer membership is well worth the money and ICTA email updates offer state and federal information on a regular basis.

I also recommend dealers contact Raymond “Ray” Gregson, Jr. (AML/BSA Expert and Specialist – aml-nacs.com). Ray was the first to present this information in a class format and is wonderful at explaining why dealers and their employees must understand The Patriot Act before Uncle Sam examines the books. His fees are also cheap and many dealers already use his services. His office number is (504) 737-1375 and his business cell is (504) 782-5092.

And Ray always offers good advice: “No dealer should be answering cash reporting questions for their customers. My clients have a document that I put together for them that they keep in their shop on the counter and give to the customer to read when they have questions. By the way, reporting is not the dealer’s real problem. Their problem is not being compliant with the AML regulations when the IRS or their bank calls and wants a copy of their last audit report and training records. That’s when they start scrambling and call me, but it is usually too late for me to do anything for them. Hopefully they get a nice IRS agent and get a slap on the wrist, but they could face a $25,000 penalty for not having an adequate AML Program.”

The entire idea of reporting within the coin business represents a virtual minefield of business and accounting problems which require professional guidance so this missive is provided for informational purposes only. Do not use this information without first asking your CPA or attorney because each situation is unique and there could be variables which have not been considered.

Finally I would like to thank Ray Gregson for much of this update and for correcting mistakes in the original commentary. Anyone with additional comments can use our contact page and perhaps there will be a Revision 4 of Reportable Bullion and Cash Transactions. Thanks for reading.

Written by California Numismatic Investments (www.GoldDealer.com)