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U.S. GOVERNMENT REPORTING REQUIREMENTS FOR COIN AND BULLION DEALERS February 22, 2013

Filed under: Investing Globally,Precious Metals — larsfforsberg @ 2:55 pm
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From Global Wealth Protection of January 22, 2013:

There is much confusion and disinformation about the extent to which coin dealers are required to obtain customer information to keep on file and use in submitting reports to the Internal Revenue Service (IRS) or other government agencies.

In some cases the confusion may be used to steer customers away from lower-margin bullion sales and towards the higher-margin coin sales, even though such items may be less suitable for the customer’s purposes.

I’ll attempt to summarize some of the reporting topics herein, but for more helpful information, you can visit the Industry Council for Tangible Assets’ (ICTA) website.

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. The first and most basic rule is that when someone makes cash payments totaling more than $10,000 in a single or in related transactions, dealers receiving such payments are required 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, money orders, and bank instruments like cashier’s checks of individual amount of $10,000 or less (bank-originated instruments in excess of $10,000 need not be reported by a dealer because 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 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 arises (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 a 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 during 2002, 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 month 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 they’re buying or selling. I understand that the AML compliance programs of most dealers have a threshold of $3,000 above which they must obtain this customer information. Some dealers will have a higher threshold for reporting due to their higher average purchase and greater volume of transactions.

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 IRS Form 1099-B, and the minimum threshold quantities that must be sold in single or related transactions before the form must be filed:

Item
Minimum Fineness
Minimum Reportable Amount
Gold Bars
0.995
Bars totaling 1 kilogram (32.15 troy oz.) +
Silver Bars
0.999
Bars totaling 1,000 troy oz. or more
Platinum Bars
0.9995
Bars totaling 25 troy oz. or more
Palladium Bars
0.9995
Bars totaling 100 troy oz. or more
1 oz. Gold Maple Leaf 25 1-oz. coins
1 oz. Gold Krugerrand 25 1-oz. coins
1 oz. Gold Mexican Onza 25 1-oz. coins
US 90% Silver Coins Coins 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 sells to a dealer 20 Krugerrands, 10 Gold Maple Leafs, $500.00 face value of US 90% Silver Coin, and 700 ounces of pure Silver Ingots, the dealer does not 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. Beware of a 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 dishonest, incompetent, or both.

Financial privacy from the US government has largely disappeared. While it troubles me to think that our freedoms and privacy are evaporating, 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.

Buying these commodities in another country is generally legal but some dealers may be required to obtain your ID as reporting requirements may apply to local citizens but not with foreigners. So, verifying your ID will help to eliminate you as one subject to local taxation.

 

Soros and Paulson are back to gold rush November 21, 2012

Filed under: Economics,Precious Metals — larsfforsberg @ 1:57 pm
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BY: RT

Legendary investors are aggressively building up positions in the precious metal. Gold exchange-traded funds have reached a record $145.1bn beating the gold reserves of every country except the United States and Germany.

This year ETF (Gold exchange-traded funds) investors bought 247 tons of gold – more than the annual production of the United States, US Securities and Exchange Commission filings show. Paulson & Co. has a $3.66 billion bet through the giant SPDR Gold Trust. The billionaire raised his stake by 26% in the second quarter and his holding of about 66 tons exceeds the official reserves of countries like Brazil and Bulgaria. Soros Fund Management increased its holding by 49% to $221.7 million in the 3d quarter.

That’s after George Soros called gold “the ultimate bubble” and largely dumped his stake in the ETF before gold rose to a nominal high of $1,920.30 per ounce in September.

The price of gold has risen for 11 consecutive years. Since the beginning of 2012 it added 11%. The price is expected to grow 20% and reach $1925 by the end of the year, according Bloomberg experts.

Analysts believe rallies will continue in 2013 amid uncertainty about the so-called fiscal cliff in the US, as well as the threat of inflation, which is growing due to increased monetary stimulus.

We see gold as insurance against the stupid politicians. Now is a good time to strengthen portfolios of real assets such as gold,” the CIF of Fiduciary Trust Michael Mullaney told Bloomberg.

The global demand for the metal in the third quarter fell 11% year on year, according to the World Gold Council.

That’s despite Central banks increasing reserves in January – September by 351.8 tons. The Bank of Russia said on Tuesday it increased its reserves by 0.3%, to 936.2 tons in October.

 

JIM ROGERS – ‘If You Are Not Worried About 2013, Please — Get Worried’ September 3, 2012

 

Buying Precious Metals with your Self Directed Retirement Vehicle July 29, 2012

BY:  Lars Forsberg

Longboat Retirement Solutions LLC

www.myselfdirectedretirement.com

The Taxpayer Relief Act of 1997 excluded certain bullion and coins from the definition of collectibles.  This cleared up some things for self directed retirement investors.

Gold bullion with a fineness of .995, Silver with a fineness of .999, Platinum with a fineness of .9995, and Palladium with a fineness of .9995 can be owned by an IRA or 401k.  This bullion must be fabricated by a NYMEX or COMEX approved refiner.

Coins that are allowed within an IRA or 401k are:

American Gold, Silver, and Platinum Eagles

Canadian Gold, Silver, and Platinum Maple Leafs

Australian Kangaroo, Nugget and Koala Coins, and Kookaburra

Australian Philharmonic

Mexican Silver Libertads

Platinum Isle of Man Cat and Noble Coins

Having precious metals within your retirement vehicle can help achieve diversification and offset inflation.

 

How To Invest Your IRA In Real Estate, Gold And Alternative Assets June 18, 2012

This article appears in the June 25, 2012 investment guide issue of FORBES magazine with the headline, “Go Rogue With Your IRA.”

Renovations are underway at the historic building Laura Harth Rodriguez bought with an inherited IRA. Credit: Scott Goldsmith for Forbes

Sidney Harth, an acclaimed violinist and conductor, died last year at the age of 85, leaving $5 ­million in assets, including musical instruments, a New York City apartment and $2 million in ­retirement accounts to his daughter, Laura Harth Rodriguez, a pianist in her mid-50s. She decided to use part of her inheritance to buy a historic three-story building in an up-and-coming section of Pittsburgh’s East End.

“My father’s investments were tied to the stock market, and it’s been so volatile,” Rodriguez says. But she worried that to swing the $595,000 purchase—an all-cash deal—she’d have to take money out of the inherited IRA, paying income tax immediately on whatever she withdrew. Then her lawyer suggested an alternative: Leave the money in the tax-deferred retirement wrapper and have the IRA itself buy the property. The deal closed in February.

Yep, an IRA can legally own real estate and a lot of other alternative investments, too, ranging from private equity and promissory notes to gold, oil and gas and cattle. (It can’t own insurance, collectibles or stock in S corporations.)

Interested? The big financial institutions that act as custodians for most IRAs generally limit investments to publicly traded stock, bonds, mutual funds and bank CDs. So you’ll first need to move your IRA to one of about two dozen smaller custodians offering “self-directed IRAs.”

This is still a niche business. As of May 2011 only $94 billion (2% of total IRA assets) was in self-directed IRAs, according to the Investment Company Institute, the mutual funds trade group. Some belong to the very wealthy—Mitt Romney’s holds offshore investments, including one worth between $5 million and $25 million in a Cayman Islands entity, according to his financial disclosure forms.

But ordinary folks have gotten into the act, too. John Mitchell, a manufacturer’s rep for software companies, is investing $50,000 of his self-directed IRA in precious metals—primarily gold and silver. He uses the Entrust Group in Oakland, Calif. as custodian, but the metal is stored with a bullion dealer near his Tampa, Fla. home. Mitchell, 37, says he likes being able to drop by to admire his metals.

Matt Lutz of Bethel Park, Pa. owned a chain of dry cleaning stores in 2006 when he rolled over a $70,000 IRA into a self-directed account at Equity Trust Co. in Elyria, Ohio. Since then he has more than tripled its value—mostly by making loans from his IRA to car dealers to finance their inventory. Three years ago Lutz, 38, sold his dry cleaning business to work full-time putting together similar loans for other people to use as IRA investments.

Despite such success stories, there are risks to getting creative with your IRA. “Self-directed IRAs are not for the faint-hearted,” says Patrick J. Felix III, the Pittsburgh lawyer who helped Rodriguez. “You better damn sure know the rules.” These pointers should help keep you safe.

Avoid self-dealing
This is a legal principle that prevents IRA owners from making investments (or loans) that benefit themselves or certain family members, even indirectly. It also bars mingling of your IRA and nonretirement funds. Run afoul of the self-dealing rules and your entire IRA could be immediately taxed.

So, for example, Rodriguez couldn’t write a $10,000 personal check for the down payment on the building her IRA was buying. Instead, she had to first transfer her father’s IRA to a self-directed IRA trustee, San Fransisco-based Pensco Trust Co. (this must be done in a so-called “trustee-to-trustee” transfer) and then have Pensco cut a check to the seller.

Another complication: Rodriguez’s husband, Francisco, a recording artist, wanted to use the second floor of the building for his studio. But he couldn’t do that if her IRA owned the space. Felix devised a workaround: Create three limited liability companies (LLCs)—one for each floor.

The IRA owns two floors, Rodriguez and her husband the floor with the recording studio. Each LLC paid one-third of the purchase price and has $250,000 of spare cash for expenses. There’s an electric and gas meter on each floor, and the LLCs split the real estate taxes, the fee for a property management firm and bills for renovations, now under way.

Rents for the IRA-owned first floor will generate about $40,000 per year, Rodriguez figures. She hopes the third floor, with its city views, can be rented for parties.

Plan for distributions
Satisfying the requirements for IRA payouts can get more complicated with illiquid assets in your IRA. An IRA owner must take an annual required minimum distribution (RMD) starting at age 70½ unless the account is a Roth. Nonspouse heirs, regardless of age, must begin withdrawals from both regular and Roth IRAs by Dec. 31 of the year following the IRA owner’s death. Miss an RMD and the IRS could hit you with a penalty equal to 50% of the required payout.

The RMD is based on the account balance on Dec. 31 of the previous year divided by life expectancy, as listed in IRS tables. Rodriguez will need to have the building reappraised each year to calculate her RMD. For now there are plenty of liquid assets in the inherited IRA to make the payout. But if the cash runs dry, the IRA would have to distribute an interest in the LLC instead, Felix says. “It’s a bit of a pain in the butt.”

Go Roth, if you can
Distributions from a traditional IRA are taxed at ordinary federal income rates, which top out at 35%. That includes long-term gains, which outside an IRA are currently taxed at a 15% top rate. In other words, you might undercut the benefits of tax deferral by paying a much higher rate than needed on your gains. With a Roth, all withdrawals by you or your heirs are tax free. That’s why an investment that might appreciate greatly belongs in a Roth IRA.

A striking example comes courtesy of Max R. Levchin, chairman of social review site Yelp. According to Securities & Exchange Commission filings, he has 3.9 million low basis shares of Yelp in his self-directed Roth IRA at Pensco. With Yelp now trading around $18, his kitty is worth at least $70 million.

For IRA owners a Roth also avoids the requirement to take yearly distributions after 70½. Not only can that leave more for beneficiaries if you don’t use the money yourself, but with assets that are partly or totally illiquid it also avoids the cumbersome calculation of RMDs that someone like Rodriguez will have to make.

If you earn too much to make annual contributions to a Roth IRA (there are income limits), consider converting a traditional IRA to a Roth. To do this you pay tax on a traditional IRA, then shift the money to a Roth where all future growth is tax free. Inherited traditional IRAs aren’t eligible.

Don’t get snookered
Both federal and state regulators note a recent increase in complaints of fraudulent investment schemes that have a self-directed IRA as a key feature. In fact, fraudsters often steer potential marks to self-directed IRAs.

Among those who got burned that way are 120 IRA investors in a promissory notes Ponzi scheme run by USA Retirement Management Services between 2005 and 2010. The SEC sued to recover the $20 million IRA owners lost, plus interest, and got a judgment from the U.S. District Court in the Central District of California in April. Whether the scammers will actually cough up the money is another matter.

Several investors in that case are suing Entrust. But don’t count on an IRA custodian to cover your losses; contracts say they aren’t on the hook if you pick a bad or bogus investment.

Just last year a Colorado federal district court judge dismissed a class action filed against four independent custodians by IRA owners who invested with Ponzi schemer Bernard Madoff. The lawsuit claimed the trustees breached their duty to hold IRA assets safe. But the judge found (among other things) that the IRA agreements clearly stated that investors were “solely responsible for making investment decisions in connection with their funds.”

In a separate case defrauded investors whose IRAs were at Equity Trust and Entrust filed a class action suit in April charging that those custodians “encouraged, facilitated, aided, abetted, promoted and consummated” fraudulent schemes while giving investors a false sense of security. According to that complaint, investment promoters required exclusive use of these custodians, and the account statements the custodians sent out showed high returns even though “the fraudsters had absconded with the victims’ investment monies within days or weeks.”

In a statement Entrust said, “It does not provide any investment advice or endorse any investment product provider or service—it simply follows the investment directives of its clients.” Equity Trust CEO Jeff Desich said in a statement that clients “should always ask a trusted financial professional such as their accountant, financial planner or lawyer for a second opinion before investing.”

The new JOBS Act, which makes it easier for some startups to raise money online with little SEC oversight, could tempt even more retirement savers to switch to self-directed IRAs. Buyer beware.

 

Gold-Investment Demand in China to Advance 10%, ICBC Says June 13, 2012

June 11, 2012

BY: Bloomberg News

Gold-investment demand in China may gain more than 10 percent this year as buyers seek a haven from Europe’s debt crisis and the prospect of weakening currencies, according to the country’s largest bullion bank.

“Investors here want to hold part of their assets in gold to hedge for the risks, especially now that the financial crisis has evolved into a sovereign crisis,” Zheng Zhiguang, general manager of the precious metals department at Industrial and Commercial Bank of China Ltd., said in an interview in Shanghai.

China will topple India this year as the largest bullion market as rising incomes bolster demand, the World Gold Council forecasts. Gold may gain for a 12th year in 2012 as European policy makers strive to avoid a breakup of the euro zone and the U.S. Federal Reserve weighs more stimulus to aid the recovery. Investors in China, facing lackluster equity markets and property curbs, are looking more to the metal, Zheng said June 6.

“It’s necessary for individual, institutional or even government investors to hold gold when the value of money is decreasing at a time of possible quantitative easing or excessive money-printing practices,” said Zheng.

Investment demand in China was a record 98.6 metric tons in the first quarter, 13 percent higher the same period in 2011, according to figures from the producer-funded council. Last year, it climbed 38 percent to 258.9 tons compared with 2010, as overall demand gained 20 percent to 769.8 tons. China’s total gold demand may reach 1,000 tons this year, the WGC has said.

Debt Crisis

Gold for immediate delivery traded at $1,598.02 an ounce at 4:03 p.m. in Shanghai, 2.2 percent higher this year. The price touched $1,526.97 on May 16, the lowest level since December, as Europe’s debt crisis weakened the euro and investors favored increased dollar holdings.

While a stronger dollar may pressure bullion, “I’m optimistic on the gold prices in the long term because of the China demand,” said Zheng. “There are too many uncertainties now in the global economy, politics and the financial sector.”

ICBC represents more than 20 percent of the turnover on the Shanghai Gold Exchange, China’s largest spot market for precious metals, and more than 30 percent of the gold-leasing business in China, according to Zheng. The lender accounted for about 16 percent of nationwide bullion sales last year.

Gold imports by mainland China from Hong Kong climbed 65 percent to a record 103.6 tons in April, according to data from the Census and Statistics Department of the Hong Kong government released on June 5. The increase came even as Lao Feng Xiang Co. (900905), the mainland’s biggest gold-jewelry maker, said in May that gold-demand growth in China may stagnate this year as falling prices put off investors and an economic slowdown crimps sales.

Hurt Exports

The second-largest economy expanded 8.1 percent in the first quarter, the slowest pace in almost three years as Europe’s crisis hurt exports. Should Greece exit the euro, the expansion may slow to 6.4 percent in 2012 without stimulus, China International Capital Corp. said on May 23.

China, which on June 7 announced the first cut in borrowing costs since 2008, has curbed property investments to avoid a bubble. The Shanghai Composite Index (SHCOMP) declined 15 percent in the past year, while spot bullion gained 5.4 percent.

On a three-month basis, gold demand in China eclipsed India’s over the past two quarters, according to the World Gold Council. The increased wealth of China’s middle class is helping to drive consumption,

Albert Cheng, the council’s Far East managing director, said in an interview in May.

Last Resort

Greek voters are set to go the polls for the second time in two months on June 17 in a vote that may determine whether the country stays in the 17-nation euro. Goldman Sachs Group Inc. (GS) said gold remains the so-called currency of last resort, forecasting a rally by year-end, according to a May 9 report.

Spanish Economy Minister Luis de Guindos said on June 9 that he would request as much as 100 billion euros ($126 billion) in emergency loans from the euro area to shore up the country’s banking system.

That, coupled with weekend trade data from China, helped to boost stocks and commodities today.

As China allowed investors to buy and hold gold only in recent years, “there’s explosive, pent-up demand because the Chinese have an attachment to gold,” said Zheng, predicting that growth in investment demand will beat the expansion in jewelry sales. “There’s great potential for expanding China’s physical gold investment market.”