7719 / What are the dealer reporting requirements on purchase or sale with regard to a precious metals investment?

Purchase: There are currently no dealer reporting requirements to the IRS (or any governmental agency) upon the purchase of any precious metal investment in any quantity at the date of this edition, unless the purchase is made with cash totaling more than $10,000 in any 12-month period. In such cases where the cash amount does exceed $10,000 in any 12-month period, the dealer is required to complete and file IRS Form 8300. The IRS is wary and looking for techniques seeking to break apart a single cash purchase to avoid such reporting.¹

Sale: The IRS is more interested in information reporting when precious metals are sold than purchased. A sale of a precious metal may require a report by the dealer on IRS Form 1099B. The rules governing dealer reporting for Form 1099B purposes are currently hard to locate, since much of the information is contained in trading contract rules created and maintained by the Commodities Futures Trading Commission (CFTC) that are less than clear and may be confusing to some. In general, a dealer must complete Form 1099B for the IRS if an investor sells silver, gold, platinum or palladium in a contract form that the CTFC has approved for trading and it otherwise satisfies the minimum requirements for such a contract. All transactions occurring within a 24 hour window are considered a single sale for purposes of these reporting rules. The current Instructions to Form 1099B express this as follows:

“A sale of a precious metal (gold, silver, platinum, or palladium) in any form for which the Commodities Futures Trading Commission (CFTC) has not approved trading by regulated futures contract (RFC) is not reportable. Further, even if the sale of a precious metal in a form for which the CFTC has approved trading by RFC, the sale is not reportable if the quantity, by weight or by number of items, is less than the minimum required quantity to satisfy a CFTC-approved RFC.

For example a broker selling a single gold coin does not need to file a Form 1099B even if the coin is of such a form and quantity that it could be delivered to satisfy a CFTC-approved RFC if all the CFTC-approved contracts for gold coins currently call for delivery of at least 25 coins.

Sales of precious metals for a single customer during a 24 hour period must be aggregated and treated as a single sale to determine if this exception applies. This exception does not apply if the broker knows or has reason to know that a customer, either alone or with a related person, is engaging in sales to avoid information reporting.” (Emphasis added)²

These instructions do not specify which coins are reportable, but it would appear that the following coins are covered: South African Krugerrands, Canadian Maple Leaf gold coins, Mexican gold 50-peso coins, and U.S. 90 percent pre-1965 silver dollars, half dollars and dimes, but not quarter dollars. Modern U.S. bullion coins are not on the list. These coins are reportable if they are in the minimum qualities under a CFTC-approved RFC. CFTC-approved “bulk gold contracts” require a minimum of 1 kilogram at a fineness of .995 or better. Under this rule, gold and silver coins would apparently be reportable to the IRS if sold in the following
quantities:

• U.S. 90 per cent silver coins – $1,000 face value


• Canadian Maple Leaf gold 1oz coin – 25 coins


• Mexican 50-Peso ‘Onzas’ gold coin – 25 coins


• South African Krugerrand gold – 25 coins

This rule means that gold bars weighing 1 kilo (or smaller bars adding up to 1 kilogram or more) are also reportable.³