Precious metals reporting rule raises concerns
A provision of the health care reform legislation enacted by Congress last March imposes reporting requirements some fear give the federal government too much information about private gold and silver ownership.
The provision has provoked additional concerns the government could order people to turn in gold and silver or even seize precious metals.
That’s not to mention other criticisms the provision has drawn for burdening businesses with additional paperwork.
Section 9006 of the Patient Protection and Affordable Care Act amends Internal Revenue Code to expand the use of 1099 forms used to track and report income associated with services rendered by independent contractors and self-employed individuals. Starting on Jan. 1, 2012, businesses will be required to issue a 1099 tax form to any vendors to which they pay more than $600 in a year.
The provision also requires coin and precious metal bullion dealers to report to the Internal Revenue Service gold and silver sales and purchases greater than $600.
“It’s going to affect business for me negatively,” said Teresa Mays, owner of the Hedge Co. in Grand Junction. Mays buys and sells coins and bullion and said her average transaction is higher than $600. Like other small business owners, she dislikes the idea of filing more paperwork, yet probably can’t justify hiring a person to do it for her.
“I would think — not just my business, but in others — it would create a black market,” Mays added. Business owners and customers could be tempted to exchange cash and forget about the paperwork. Mays also wonders how many accountants want more paper to handle during tax season.
“The responsibility for issuing forms kicks in at $600 for coins or bullion — not a very high level and one that has already started sounding alarm bells,” David Ganz, a lawyer and columnist who writes about coin collecting, stated in a story published last summer on the Internet.
Indeed, $600 buys less than a half ounce of gold these days. The metal closed at $1,421.40 an ounce at the end of 2010, up more than 29 percent over the last day of 2009. Meanwhile, silver was going for about $30 an ounce — 90 percent higher than the price a year ago. Some analysts expect strong demand from China to drive up the price of silver three-fold over the next 12 months.
Max Smith, a retired Grand Valley businessman, said he’s investigated the issue as an investor in precious metals. “When I finally selected who I wanted to buy gold and silver from, their packet of investor information highlighted the existing legislation affecting what the government can do over your individual purchase of precious metals,” Smith said.
Smith said he purchased gold in 2007 after reading the precious metal could be a good investment. He was looking for a good return as he reduced his working hours and looked forward to retiring full-time. Since then, Smith said he’s realized a 33 percent return on his investment.
Smith said he’s not telling people to refrain from purchasing precious metals as investments, but wants people to understand the nuances of the process and how they can protect their investments.
Tracking gold and silver ownership is not new. Investors are required to report gains on precious metals. But those leery of the new requirement say the change constitutes yet another way to find out who owns gold and silver.
Opponents of this viewpoint might say it’s a stretch to suggest the government would seize precious metals. But concerned investors point to a precedent for ordering people to turn in their gold under an executive order issued by President Franklin Delano Roosevelt in 1933. People were ordered to turn in gold coins and bullion for payment of $20.67 a troy ounce. Taking into account inflation, that figure translates into about $348 in today’s dollars — less than
25 percent of the current price of gold.
Despite the threat of fines of up to $10,000 and 10 years in prison, it’s estimated only 25 percent of the people and organizations that owned gold complied with the 1933 order. Limitations on private ownership of gold in the United States were repealed in 1974.
Gold and silver coin dealers might point to an exception that could entice investors to purchase coins. The 1933 order exempted gold coins deemed rare and that had special value to collectors. The order also exempted gold held in foreign banks.
That’s the route Smith initially took. “I purchased a gold certificate, which was secured and housed in London,” he said. In addition to the overseas deposit, the certificate offered extra protection, he said.
Smith recently cashed in the gold certificate — not because he was concerned about security, but because of his view of the world economy. “I became concerned about global economics and cashed that certificate in December 2010,” he said. “I then, with the profits from my investment, focused on both gold and silver coins. I decided on the actual coins as a hedge against inflation and insolvency of the U.S. dollar.”
Smith is a vocal supporter of the Tea Party movement, urging elected officials from all parties to curtail spending and bring down government debt. Like others in the movement, he’s concerned the United States and other countries could be headed for a financial crisis similar to what has happened in Greece. That country has piled up huge deficits and had to rely on other European countries for assistance.
While Smith and others raise concerns about government oversight of precious metals, others are less worried.
“There is nothing specific in the health care reform law that calls out a requirement to produce special reports for the sale of gold, bullion, silver notes, etc. (other than the $600 transaction report for all goods and services…),” said Kayla Arnesen, director of marketing for Rocky Mountain Health Plans. “There is nothing in the law that speaks to confiscation to help pay for health care reform.”
Concerns persist, however, over other effects of the provision on businesses.
“I can tell you that the cost of small business to comply is much higher per capita than in large businesses,” said Cathy Staten, a partner at High Desert CPAs in Grand Junction. Staten said the American Institute of Certified Public Accountants is lobbying lawmakers to overturn the legislation.
Businesses have been required to report many such purchases in the past, but the new law includes expenditures of more than $600 in the course of a year, Staten said.
People who own rental property need to adjust even quicker. Beginning this year, they must issue 1099 forms to vendors they pay more than $600. The law previously exempted rental owners.
“We sent out an alert to everyone who has a rental property,” said Orville Petersen, tax principal for the Chadwick, Steinkirchner, Davis & Co. accounting firm in Grand Junction.
Ultimately, there’s the matter of trying to assess why the government would want to confiscate precious metals At the least, political fallout would be great for any politicians who favored such confiscation.
But there is that precedent in 1933. And there’s the viewpoint that government is tempted to exert more control as time goes by. That opinion is expressed in a report on the website located at www.buygoldco.com/gold-confiscation:
“Why would that be tucked in the 2,300 pages of the health care bill? It is there because the bill isn’t about health care, it’s about government control … This is truly the tyranny of the minority.”
Such views are likely to be debated even as small businesses continue to lobby lawmakers to revise regulations that figure to substantially increase paperwork.