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US Government now tracking gross proceeds on gold sales over $600

An interesting wrinkle in the recently passed healthcare legislation involves language inserted into the bill to track gold bullion sales. For gold dealers, the problem is the paperwork because they now have to file 1099 forms for every transaction over $600 – which is essentially every transaction since gold sells for nearly $1200 per ounce in the spot market. But for individual investors, it means Big Brother is now watching you. It knows when you buy gold, how much you have bought and potentially much more.

In the video below Jim Cramer and Alix Steel discuss what this means for investors and for owning physical versus ETF gold. My view is that ETFs are paper and may not be backed 100% by a physical product. To the degree that this law pushes people into ETFs and away from the physical product, it is a pernicious little piece of legislation.

About two weeks ago, David Galland of Casey Research wrote this about the new law:

Dear Reader,

In past editions of this service, I’ve advocated tuning your personal radar to pick up early indications that the government is taking an active interest in gold. Especially when that interest revolves around terrorists or tax evaders, two popular bogeymen these days.

It was, therefore, with more than a little concern that I read an article in our Ed Steer’s Gold & Silver Daily service yesterday on an item slid into the legislation authorizing the government takeover of health care. Here’s a snip from Ed’s letter…

The good folks over at numismaster.com report that, starting on January 1st in 2012, U.S. federal law will require coin and bullion dealers to report to the Internal Revenue Service all gold and silver coin purchases and sales greater than $600. The report is written by David L. Ganz and is headlined "$600 Sale? Get Ready for Tax Form."  Apparently this little jewel was an add-on to the national health care legislation. But there’s a new bill being introduced by Rep. Dan Lungren (H.R. 5141), which has gathered over 80 members of Congress as co-sponsors to repeal this section… so we’ll see how that turns out. The link to the story is here.

According to the author of the article Ed references, the rationale for the new regulations is that the taxocrats believe that people conducting off-book trading in precious metals are chiseling them out of $17 billion in lost revenue annually. The net result, however, will be that the government will soon know who’s got the gold.

The full Casey Research piece will go up later tonight because the rule applies not just to gold bullion but all transactions over $600. Now, I am not partial to conspiracy theories but this gives me the creeps. It is a legislative sleight of hand, especially given how it was buried in a completely unrelated, large and complicated bill. I see this as an extremely negative event. Clearly big government is back with a vengeance. When Marc Faber said "I advise every American to hold his gold outside of the United States" he wasn’t kidding.

h/t David Merkel

Note: while the original title of this post did not include ‘gold’, most of the debate has centered on gold sales. Why is not yet clear to me. The provision in the health care bill is operative for all transactions above the $600 threshold. The link from numismater gives a $17 billion sum for the money expected to be recouped from previously unreported taxable income; but again I have yet to determine whether this applies to all tax dodging targeted by this legislation or specifically to the gold. I suspect the former.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

10 Comments

  1. Bob_in_ma says:

    What paranoid nonsense. It gives you the creeps that the government is trying to decrease the number of deadbeats not paying their way?

    • No Bob, it gives me the creeps that a bill for healthcare had this provision slipped into it. If you want to go after tax dodgers, make the law stand on its own. Slipping it into a larger piece of legislation demonstrates ill will.

  2. Commiewarpig says:

    Ed,

    Didn’t they used to have to report transactions over $5000, and aren’t these informational forms only required when the purchases are deducted?

    And they included this in the bill to get the cost total for Obamacare down. The estimated savings were added based on this addition to the bill in order to get the total cost of the health care bill down. These bills are marketed like products. It also has student loans – this is typical from D.C.

    Moving on…

    • If you like the statist approach as your moniker commiewarpig suggests then sure why not have unrelated legislation inserted into every bill in Congress as seems to be the norm. This provision never would have stood on its own – and the concept that this is to pay for healthcare is laughable. Surely you realize this is propaganda.

      • Commiewarpig says:

        Ed,

        My moniker is a joke. I’m from Alabama, so you should know how I vote.

        I’m just saying that 9006 in the Act simply reduces the reportable 1099 amount from $5,000 to $600 for goods – services have always been $600. It’s also not specifically targeted to gold.

        I don’t support what D.C., but I told you why they added it in there – to reduce the cost of Obamacare. It’s business as usual in D.C. I’m just trying to correct some of the misinformation out there. Have you read the addition? Why the hate?

        • It’s the process I dislike. It’s the same sort of thing that happens to almost all large bills, pork barrel spending or unrelated provisions get added as special favors for specific legislators.

          And as I indicated, this is a way for government to keep watch on who owns what more than it is about taxes. I liken it to what happened in Greece regarding the use of cash. The government in Greece wants transactions to be recorded electronically so as to track tax cheats, something they need to do.

          But the ends don’t justify the means. They never do. If you want to catch cheats, do it in a proper way so that it can be subject to full scrutiny.

        • Commiewarpig says:

          The process is horrible. D.C. is a joke.

          What I dislike is how this provision got focused on gold. I saw on the front page of Drudge yesterday: “New Tax on Gold.” It could have just as easily said silver or platinum or paper towels.

          Tracking is non-starter except for the catastrophe farm crowd and the bullion bulls. The real issue is the additional burden that it places on mom and pop businesses. It’s no big deal when your AP clerk has to just hit a button and the 1099s spit up. But I’m guessing many small businesses don’t have the luxury.

          Thanks for writing.

        • Exactly. If you are a small business making an order for bottled water or printer paper, you better do it in increments of $599.99 or less or you’re going to have a 1099 filing on your hands. This is absurd of course. What I would like to know is who inserted this provision and what was the specific rationale. Right now, people are focused on the $17 billion in alleged missing gold sale taxes and I think this is why the focus has been on gold. But the burden to business is pretty large.

          And note, even if you individual charge are low, say no more than $15 each, if you pay more than $600 to a single vendor, you now need to file a 1099.

  3. DG says:

    Here’s why a tax on gold trading is insidious:
    It is not that gold is gaining value, it is that $USD is losing value. You put your cash into something stable and then then they tax you on the amount their worthless fiat has fallen!

  4. Unless the IRS massively increases its (competent) pool of analysts it will be literally buried under an avalance of 1099′s.

    I recommend all citizens start sending the IRS forms for ALL transactions including gasoline and coffee from McDonalds.

    Filing is hit – or – miss now. Most small busnesses – and large ones too – ignore the rules. Home Depot sells thousands of dollars in materials to small contractors daily (or they did before the GFC). No 1099s, thanks. Ditto with car repairs, vacations, business trips and other ‘big ticket’ service items.

    Real estate transactions are reported but the IRS misses them since it lacks the staff to pick individual transactions from the flow.

    The reporting requirement is unrealistic, more vaporware from Capital Hill.

    As far as Congress adding bits and pieces to unrelated legislation; this is something that has been begging for reform for a long time. A related problem is the recent phenomenon of 2k+ page acts that are impossible to parse. No law should be enacted that has more than one subject and requires more than standard sized 20 pages to describe.