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Does anyone do Like Kind Exchanges of numismatic coins into bullion in order to defer tax?
Longacre
Posts: 16,717 ✭✭✭
I did a quick search on Lexis, and I found this Rev. Rul. According to Shepherd’s, it is still a good ruling (I also tried to find a more recent ruling). Does anyone here do Like Kind Exchanges of numismatic coins into bullion coins, and if so, do you agree with the IRS’s ruling regarding the tax treatment of this transaction? I also listed a summary of a tax case which decided a similar issue below. Maybe some others on these boards can find additional guidance.
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Rev. Rul. 79-143; 1979-1 C.B. 264;
1979 IRB LEXIS 573, *
Revenue Ruling 79-143
Rev. Rul. 79-143; 1979-1 C.B. 264; 1979 IRB LEXIS 573
January 1979
[*1]
SUBJECT MATTER: Section 1031.-Exchange of Property Held for Productive Use or Investment
APPLICABLE SECTIONS:
26 CFR 1.1031 (a)-1: Property held for productive use in trade or business or for investment.
TEXT:
Sale or exchange; like kind; gold coins. The exchange of U.S. $20 gold coins (numismatic-type coins) for South African Krugerrand gold coins (bullion-type coins) does not qualify for nonrecognition of gain as a like kind exchange under section 1031 of the Code; Rev. Rul. 76-214 distinguished.
ISSUE
Does an exchange of numismatic-type coins held for investment for bullion-type coins held for investment qualify for nonrecognition of gain under section 1031 of the Internal Revenue Code of 1954?
FACTS
An individual taxpayer who is not a dealer in foreign or domestic coins purchased United States $20 gold coins as an investment. After the coins had appreciated in value, the taxpayer exchanged them for South African Krugerrand gold coins of equal total fair market value. A gain was realized by the taxpayer as a result of the exchange. The taxpayer will hold the South African Krugerrand gold coins as an investment.
The United States $20 gold coins exchanged by the taxpayer are numismatic-type coins. The value of numismatic-type coins [*2] is determined by their age, number minted, history, art and aesthetics, condition, and metal content. The South African Krugerrand gold coins received by the taxpayer are bullion-type coins. The value of bullion-type coins is determined solely on the basis of their metal content.
LAW AND ANALYSIS
Section 1031 (a) of the Code provides that no gain or loss is recognized upon an exchange of property (not including evidences of indebtedness) held for productive use in trade or business or for investment for property of a like kind to be held either for productive use in trade or business or for investment.
Section 1.1031 (a)-1 (b) of the Income Tax Regulations provides that as used in section 1031 (a) of the Code, the words "like kind" have reference to the nature or character of the property and not to its grade or quality. One kind or class of property may not, under that section, be exchanged for property of a different kind or class.
Section 1031 (e) of the Code provides that the exchange of livestock of one sex for livestock of the other sex is not an exchange of property of like kind for purposes of the nonrecognition provision of section 1031 (a), because, as the committee report cited [*3] below points out, the different sexes of livestock represent investments of different types, in one case an investment for breeding purposes, in the other an investment in livestock raised for slaughter. Section 1031 (e) was enacted to clarify what was considered to be the correct interpretation of section 1031 (a). See S. Rep. No. 91-552, 91st Cong., 1st Sess. 102 (1969), 1969-3 C.B. 423, 488-489.
Similarly, in this case, although the coins appear to be similar because they both contain gold, they actually represent totally different types of underlying investment, and therefore are not of the same nature or character. The bullion-type coins, unlike the numismatic-type coins, represent an investment in gold on world markets rather than in the coins themselves. Therefore, the bullion-type coins and the numismatic-type coins are not property of like kind.
HOLDING
The exchange of United States $20 gold coins for South African Krugerrand gold coins does not qualify for nonrecognition of gain under section 1031 (a) of the Code.
Rev. Rul. 76-214, 1976-1 C.B. 218, which holds that the exchange of Mexican 50-peso gold coins for Austrian 100-corona gold coins, both of which are official government [*4] restrikes, qualifies for nonrecognition of gain under section 1031 (a) of the Code, is distinguishable because that Revenue Ruling involves only the exchange of bullion-type coins for bullion-type coins.
Service: Get by LEXSEE®
Citation: Rev. Rul. 79-143
View: Full
Date/Time: Wednesday, November 14, 2007 - 1:39 PM EST
***********
Here is the Tax Court case summary:
76 T.C. 107, *; 1981 U.S. Tax Ct. LEXIS 186, **
California Federal Life Insurance Company, Petitioner v. Commissioner of Internal Revenue, Respondent
Docket No. 6753-79
UNITED STATES TAX COURT
76 T.C. 107; 1981 U.S. Tax Ct. LEXIS 186
January 21, 1981, Filed
DISPOSITION: [**1] Decision will be entered for the respondent.
CORE TERMS: gold coins, gold, coin, exchanged, franc, market value, like-kind, dividend, valued, amount realized, face value, personal property, legal tender, real property, productive use, stock, money received, circulating, statutory law, disposition of property, economic situation, bullion-type, circulation, bullion, dollar, dealer, peso, capital loss, shareholder, Emergency Banking Relief Act
SYLLABUS
On Mar. 31, 1975, petitioner exchanged Swiss francs for 175 U.S. Double Eagle gold coins. Held, the U.S. Double Eagle gold coins constitute "property (other than money)" within the meaning of sec. 1001(b), I.R.C. 1954, and therefore are valued at their fair market value on the transaction date. Held, further, the exchange of the Swiss francs for the U.S. Double Eagle gold coins is not a "like-kind" exchange under the provisions of sec. 1031(a).
COUNSEL: Thomas R. Sheppard, Robert Joe Hull, and Michael D. Fernhoff, for the petitioner.
David P. Fuller, for the respondent.
JUDGES: Scott, Judge.
OPINION BY: SCOTT
*************************
Rev. Rul. 79-143; 1979-1 C.B. 264;
1979 IRB LEXIS 573, *
Revenue Ruling 79-143
Rev. Rul. 79-143; 1979-1 C.B. 264; 1979 IRB LEXIS 573
January 1979
[*1]
SUBJECT MATTER: Section 1031.-Exchange of Property Held for Productive Use or Investment
APPLICABLE SECTIONS:
26 CFR 1.1031 (a)-1: Property held for productive use in trade or business or for investment.
TEXT:
Sale or exchange; like kind; gold coins. The exchange of U.S. $20 gold coins (numismatic-type coins) for South African Krugerrand gold coins (bullion-type coins) does not qualify for nonrecognition of gain as a like kind exchange under section 1031 of the Code; Rev. Rul. 76-214 distinguished.
ISSUE
Does an exchange of numismatic-type coins held for investment for bullion-type coins held for investment qualify for nonrecognition of gain under section 1031 of the Internal Revenue Code of 1954?
FACTS
An individual taxpayer who is not a dealer in foreign or domestic coins purchased United States $20 gold coins as an investment. After the coins had appreciated in value, the taxpayer exchanged them for South African Krugerrand gold coins of equal total fair market value. A gain was realized by the taxpayer as a result of the exchange. The taxpayer will hold the South African Krugerrand gold coins as an investment.
The United States $20 gold coins exchanged by the taxpayer are numismatic-type coins. The value of numismatic-type coins [*2] is determined by their age, number minted, history, art and aesthetics, condition, and metal content. The South African Krugerrand gold coins received by the taxpayer are bullion-type coins. The value of bullion-type coins is determined solely on the basis of their metal content.
LAW AND ANALYSIS
Section 1031 (a) of the Code provides that no gain or loss is recognized upon an exchange of property (not including evidences of indebtedness) held for productive use in trade or business or for investment for property of a like kind to be held either for productive use in trade or business or for investment.
Section 1.1031 (a)-1 (b) of the Income Tax Regulations provides that as used in section 1031 (a) of the Code, the words "like kind" have reference to the nature or character of the property and not to its grade or quality. One kind or class of property may not, under that section, be exchanged for property of a different kind or class.
Section 1031 (e) of the Code provides that the exchange of livestock of one sex for livestock of the other sex is not an exchange of property of like kind for purposes of the nonrecognition provision of section 1031 (a), because, as the committee report cited [*3] below points out, the different sexes of livestock represent investments of different types, in one case an investment for breeding purposes, in the other an investment in livestock raised for slaughter. Section 1031 (e) was enacted to clarify what was considered to be the correct interpretation of section 1031 (a). See S. Rep. No. 91-552, 91st Cong., 1st Sess. 102 (1969), 1969-3 C.B. 423, 488-489.
Similarly, in this case, although the coins appear to be similar because they both contain gold, they actually represent totally different types of underlying investment, and therefore are not of the same nature or character. The bullion-type coins, unlike the numismatic-type coins, represent an investment in gold on world markets rather than in the coins themselves. Therefore, the bullion-type coins and the numismatic-type coins are not property of like kind.
HOLDING
The exchange of United States $20 gold coins for South African Krugerrand gold coins does not qualify for nonrecognition of gain under section 1031 (a) of the Code.
Rev. Rul. 76-214, 1976-1 C.B. 218, which holds that the exchange of Mexican 50-peso gold coins for Austrian 100-corona gold coins, both of which are official government [*4] restrikes, qualifies for nonrecognition of gain under section 1031 (a) of the Code, is distinguishable because that Revenue Ruling involves only the exchange of bullion-type coins for bullion-type coins.
Service: Get by LEXSEE®
Citation: Rev. Rul. 79-143
View: Full
Date/Time: Wednesday, November 14, 2007 - 1:39 PM EST
***********
Here is the Tax Court case summary:
76 T.C. 107, *; 1981 U.S. Tax Ct. LEXIS 186, **
California Federal Life Insurance Company, Petitioner v. Commissioner of Internal Revenue, Respondent
Docket No. 6753-79
UNITED STATES TAX COURT
76 T.C. 107; 1981 U.S. Tax Ct. LEXIS 186
January 21, 1981, Filed
DISPOSITION: [**1] Decision will be entered for the respondent.
CORE TERMS: gold coins, gold, coin, exchanged, franc, market value, like-kind, dividend, valued, amount realized, face value, personal property, legal tender, real property, productive use, stock, money received, circulating, statutory law, disposition of property, economic situation, bullion-type, circulation, bullion, dollar, dealer, peso, capital loss, shareholder, Emergency Banking Relief Act
SYLLABUS
On Mar. 31, 1975, petitioner exchanged Swiss francs for 175 U.S. Double Eagle gold coins. Held, the U.S. Double Eagle gold coins constitute "property (other than money)" within the meaning of sec. 1001(b), I.R.C. 1954, and therefore are valued at their fair market value on the transaction date. Held, further, the exchange of the Swiss francs for the U.S. Double Eagle gold coins is not a "like-kind" exchange under the provisions of sec. 1031(a).
COUNSEL: Thomas R. Sheppard, Robert Joe Hull, and Michael D. Fernhoff, for the petitioner.
David P. Fuller, for the respondent.
JUDGES: Scott, Judge.
OPINION BY: SCOTT
Always took candy from strangers
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
0
Comments
<< <i>Similarly, in this case, although the coins appear to be similar because they both contain gold, they actually represent totally different types of underlying investment, and therefore are not of the same nature or character. The bullion-type coins, unlike the numismatic-type coins, represent an investment in gold on world markets rather than in the coins themselves. Therefore, the bullion-type coins and the numismatic-type coins are not property of like kind. >>
That's always been my understanding as explained to me by our CPA. Like Kind means Like Kind. Similar but different classes do not qualify. It's come up for me both in coins and investment real estate.
<< <i>*Yawn*
<< <i>Similarly, in this case, although the coins appear to be similar because they both contain gold, they actually represent totally different types of underlying investment, and therefore are not of the same nature or character. The bullion-type coins, unlike the numismatic-type coins, represent an investment in gold on world markets rather than in the coins themselves. Therefore, the bullion-type coins and the numismatic-type coins are not property of like kind. >>
That's always been my understanding as explained to me by our CPA. Like Kind means Like Kind. Similar but different classes do not qualify. It's come up for me both in coins and investment real estate. >>
Same here. Bullion and numismatic coins are not like from everything I have heard.....except from some vocal ultramodern guys on here.
NSDR - Life Member
SSDC - Life Member
ANA - Pay As I Go Member
So, you can exchange the Longacre Legacy Collection of MS-65 Charlotte, Dahlonega and New Orleans gold coins for the “Simpson” collection of patterns and not have a taxable gain on the exchange. But, exchange for that nice little 14 bedroom cottage in the Hamptons would not qualify.
Likewise, I can exchange 1,000 shares of Microsoft for 1,000 shares of Google and not have a taxable gain on the transaction. The only problem is finding someone willing to make the exchange.