Tax on gains and proving a cost basis.

gecko109

In a hypothetical situation, lets assume a private individual had $15,000 worth of bullion he aquired over the span of 15 years. He retires, and stops adding to his stack. 3 years later the man experiences a small fire in his home office in which every receipt he had for that bullion was destroyed. How does he now handle the obligation of proving his cost basis to the IRS when he goes to sell his bullion now? Is there a default formula the IRS uses in this case, such as an assumed 20% gain on the total value? Or will the IRS allow the man to state approximately what his cost basis was as best as he can remember? Or will the IRS.....GASP....just assume the cost basis was $0 and make all $15,000 liable for taxation as the gains?

This has to have happened many times...anyone have an idea?

jmski52

My understanding is that the taxpayer can report the cost basis as he best remembers it, but if he is audited, the IRS will assume a cost basis of 0.

dontippet

<< <i>My understanding is that the taxpayer can report the cost basis as he best remembers it, but if he is audited, the IRS will assume a cost basis of 0. >>




I agree with you. If it happened to me, I would estimate the cost basis. If I got audited, then I would probably have to pay as if the entire amount was profit.

OnlyGoldIsMoney

<< <i>My understanding is that the taxpayer can report the cost basis as he best remembers it, but if he is audited, the IRS will assume a cost basis of 0. >>



Each one of my PM purchases go into a spreadsheet. I record actual cost and shipping. Hopefully that would be sufficient.

In an audit situation how can the IRS claim a cost basis of $0? Would they have to assume I have a rich uncle who handed me a pile of gold and silver?

Justacommeman

Sounds a lot like if you lose your parking ticket in a garage. You can tell them that you were only there for an hour...............

but, they usually will make you pay the maxium rate

MJ

AboutAg

<< <i>In an audit situation how can the IRS claim a cost basis of $0? Would they have to assume I have a rich uncle who handed me a pile of gold and silver? >>



Or, think of it this way -- how do they know that 1970 Krugerrand you have wasn't bought in 1974 for $150? Or that you found it at the beach?

PerryHall

Best strategy is to sell a little here and there over a peroid of time to coin collector friends, coin dealers, on the BST, etc.

AboutAg

<< <i>Best strategy is to sell a little here and there over a peroid of time to coin collector friends, coin dealers, on the BST, etc. >>



I wouldn't choose that strategy! If the IRS audits you, they see that you deposited $1,200 but you can't prove what you sold, they certainly aren't going to buy your theory that your receipts from purchasing were lost.

Of course, if you want to commit tax fraud, that might be a good strategy (until/unless you get caught), but that's well beyond my scope of expertise.

PerryHall

<< <i>

<< <i>Best strategy is to sell a little here and there over a peroid of time to coin collector friends, coin dealers, on the BST, etc. >>



I wouldn't choose that strategy! If the IRS audits you, they see that you deposited $1,200 but you can't prove what you sold, they certainly aren't going to buy your theory that your receipts from purchasing were lost.

Of course, if you want to commit tax fraud, that might be a good strategy (until/unless you get caught), but that's well beyond my scope of expertise. >>



Where did I advocate commiting tax fraud?

bluelobster

This happens hundreds of thousands of times a year in reporting gains and losses on longly held stocks each year, best estimates usually suffice, the IRS doesn't know cost basis.

topstuf

They're gonna have an "Unintended Consequence" if they keep this up.

Taken in a rising tax environment, gold could still be the preferred tender.

Might take some "tax rate" arbitrage figuring, but still doable between knowledgeable folks.

Stemming the usage of gold as a currency is something that hasn't ever worked.

guitarwes

<< <i>My understanding is that the taxpayer can report the cost basis as he best remembers it, but if he is audited, the IRS will assume a cost basis of 0. >>




If you can't prove the cost basis, at least take the face value cost basis. That's just dirty of the IRS to assume a $0 cost basis.

topstuf

Then let the IRS show where gold Eagles EVER traded at 50 bucks.

KbKards

If copies of the receipts were lost in the fire at home all he would have to do is use the copies he kept in the bank safe deposit box.

gecko109

<< <i>If copies of the receipts were lost in the fire at home all he would have to do is use the copies he kept in the bank safe deposit box. >>




Yeah, because everybody I know keeps not only all the original receipts, but a few back up copies of them as well.

jmski52

I should add that the IRS can assume whatever they want, but the taxpayer can also argue a case if he has reasonable documentation as to historical prices. You would at least have to have some obtuse way of showing that the coins weren't stolen or gifted and that you had bought them yourself. But I'd hire a tax attorney to argue your case if it came to that. There are other things that could be done, like pulling records from the seller if he is available or the Mint if you bought something from them. If a fire could be documented (and ruled not to be arson), it could lend credibility to the case as well, although I don't know how effective that argument would be - all the more reason to get representation by someone who deals with them routinely.

Baley

who's going to look an auditor in the eye and tell them, "yes, a small fire in my home office destroyed my receipts, but not much else"