What's a Numismatic Coin . . . and Why You Should NOT Buy Them

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What's a Numismatic

Coin ...and Why You Should NOT Buy Them!

The following article first appeared in

the July, 1996 Moneychanger. I am reprinting it now because over and

over coin dealers keep repeating the same false claims which this

article disproves. These include:

1. "Numismatic" coins are exempt

from government seizure by law. Totally false - no basis in statute or

regulation.

2. Customer purchases of bullion

gold coins must be reported to the government, but numismatic coins

don't have to be reported. Totally false - no report is required when

you buy gold, regardless whether it is bullion or numismatic. Only

sales of certain gold and silver items must be reported, and then only

when they exceed certain quantities.

3. Coins minted before 1934 are

exempt from government seizure. Totally false - no basis in statute or

regulation.

4. United States $20 gold pieces

minted before 1934 are exempt from government gold seizure. Totally

false - no basis in statute or regulation. In fact, it was mainly

these coins which the government seized in 1933.

5. The law defines "numismatic

coins" as those having a premium of 15% or more over their gold

content. Totally false - no basis in statute or regulation. A

regulation was proposed in 1984, but never adopted.

6. The law defines United States $20

gold pieces as "numismatic" coins. Totally false - no basis in statute

or regulation.

Let the buyer beware! You should buy

what is best for you, not what is best for some coin dealer. In

emergencies (such as Y2K), all values tend to sink to their lowest

common denominator. With gold and silver coins, that means their

precious metal content. Premiums, especially numismatic premiums that

depend on stable markets & widespread prosperity, cannot survive

that sort of pressure. Why spend money to buy premium that does not

bring you any benefit? If you have numismatic coins, act now, while

you can, to convert that numismatic premium into more gold and silver

by swapping your numismatic coins for bullion coins. Call, fax, or

e-mail us a list of your coins and we will calculate exactly how much

gain in ounces of gold or silver that swap would net you. - F. Sanders

 

Collecting coins can be a hobby both

fascinating and rewarding. In the past 25 years, investors have

discovered the exotic world of numismatics and jumped in with big

bucks. Riding the wave of mythical profits in numismatic coins,

dealers in the '70s set up boiler rooms where salesmen armed with WATS

lines pushed quasi-numismatic coins like US silver dollars or $20 gold

pieces. I say "quasi"-numismatic because so many of these exist that

they aren't truly "rare" coins, although they carry big premiums over

their gold or silver value, and they can dance and jump when the gold

bull is raging.

The problem is, gold and silver

dealers keep on convincing people to buy the more expensive US $20 gold

pieces on the basis that they are "numismatic" coins. What difference

does that make? When gold was confiscated in 1934, they say,

"numismatic" coins were exempted.

I don't find that logic convincing.

The exemption in 1933 was very vague: "gold coins having a recognized

special value to collectors of rare and unusual coins" (Presidential

Proclamation of 4/5/1933). Worse yet, our government tyrants are

notoriously arbitrary. If they confiscate gold a second time, why

would you expect them to be consistent? Besides, who will turn in his

gold if his family's safety depends on it? Besides, in 1933 US $20s

comprised the largest part of banks' gold reserves, and most assuredly

were not exempted from seizure.

WHAT ABOUT

DEFINITIONS?

But here's a new twist on things. In

the past 15 years dealers have been hammering out regulations with IRS

about the definition of "numismatic" coins. Many dealers aver that

some government regulation defines a "numismatic coin" as one that

costs more than 15% over its gold or silver value. (We'll examine this

claim more closely in a moment.) Relying on that definition, gold and

silver dealers urge you to buy US $20s, which sell at far more than a

15% premium.

But so far, nobody has noticed this

other, larger loophole:

The Gold Bullion Coin Act of 1985

(Public Law 99-185 of Dec. 17, 1985, 99 Statutes At Large 1177, 31 USC

5101, 5111, 5112) provided for minting the American Eagle ounce, half

ounce, quarter ounce, and tenth ounce gold coins. Section 2(3)

provides, "For purposes of section 5132(a)(1) of [Title 31], all coins

minted under this subsection shall be considered to be numismatic

items."

The Liberty Coin Act of July 9, 1985

(Public Law 99-61 of 7/9/85, 99 Stat. 115, 31 USC 5112) authorized the

one ounce silver coin commonly called the Silver American Eagle. At

section 202(g) it contains identical language.

By statutory definition then, the

American Eagle gold coins and the silver American Eagles are

"numismatic" coins. (31 USC Section 5132(a)(1) requires the Secretary

of the Treasury to apply proceeds from selling "numismatic" items to

cost of making them.)

Here's another kicker. I nearly wore

out a law school librarian trying to find the regulation that defines a

numismatic coin as one that sells for more than 15% over its bullion

value, but we couldn't find it. Thanks to the Industry Council for

Tangible Assets (ICTA), I found it in a proposed regulation 26 CFR

1.6045-1 on page 647-648 of the Federal Register, Vol. 49, No. 3,

1/5/1984. But that proposed regulation was never adopted, and the

current 26 CFR 1.6045-1 contains none of that language. I couldn't

find it in any IRS letter rulings or other decisions, either. If it

exists, neither the librarian nor I could find it. [Within the month

of July 1998 one customer told me that a dealer had faxed him a copy of

the proposed regulation claiming that his company's corporate attorney

said it was current law! When the customer asked for a letter from the

attorney stating that, the salesman said that wouldn't be possible.

-- FS]

What's the bottom line? Contrary to

what most gold and silver dealers think, US $20 gold pieces and silver

dollars do not qualify as "numismatic" coins.

However, if the federal government

intends to confiscate gold, any "exemption" for "numismatic" coins has

to include the American Eagle gold and silver coins. After all, not

just a regulation but a statute specifically defines them as

"numismatic." I wonder if dealers who keep urging customers to buy the

higher priced US $20s "because their higher premium qualifies them as

numismatic coins" have thought of this?

BIG BROTHER WANTS

TO KNOW

Building its grid of government

control, the IRS in the 1980s began to introduce

(1) information reporting ("broker

reporting") and

(2) cash transaction reporting

requirements ("cash reporting").

Broker reporting applied to a wide

number of transactions, but those that concern us are "commodities."

That included any personal property for which the Commodity Futures

Trading Commission (CFTC) has approved trading in futures contracts,

among others, gold, silver, platinum, palladium, and US 90% silver

coins.

Don't let this confuse you. Sales to

customers aren't reported, only certain purchases from customers. I

repeat, I haven't found any requirement in the law that anyone must

report precious metals sales to customers per se.

Specifically, according to Revenue

Procedure 92-103, dealers need only report purchases from customers

which could satisfy a futures contract. That includes

1) lots of 25 or more (but not

fewer) Krugerrands, Maple Leaves, or Mexican Onzas,

2) kilo gold bars,

3) 100 ounce gold bars,

4) 1,000 oz. silver bars,

5) $5,000.00 face value (five bag

lots, not five thousand bucks worth!) of US 90% silver coin,

6) 50 oz. of platinum, or

7) 100 oz. of palladium.

After fighting with gold and silver

dealers through the 1980s the final IRS broker reporting regulation (26

CFR 1.6045-1) didn't include anything about numismatic coins.

Now it seems that if the government

intends to confiscate gold, any "exemption" for numismatic coins has to

include the American Eagle gold and silver coins. After all, not just

a regulation but a statute specifically defines them as "numismatic."

I wonder if dealers who keep urging customers to buy the higher priced

US $20s "because their higher premium qualifies them as numismatic

coins" have thought of this?

CASH REPORTING

QUIRK

Cash reporting, as opposed to broker

reporting, is a hog of a different color. Cash reporting requires

certain entities to report receiving "cash" in amounts greater than

F$10,000 (or F$3,000 in some circumstances). For this purpose, the

government isn't interested whether you are buying precious metals or

fertilizer, only that you plunked down "cash".

The cash reporting requirements of 26

United States Code 6050-I supposedly have companion regulations at 26

CFR Part 1, Section 6050-I-1©(7)(i). But note that the word "cash"

has a special definition in this law. In a December 30, 1993 letter,

the IRS Assistant Chief Counsel for Income Tax & Accounting Vincent

Cardella wrote to the Industry Council for Tangible Assets (ICTA) as

follows:

Section 1.6050I-1©(1) of the

Treasury Regulations defines the term "cash," in part, to include the

coin and currency of the United States or of any other country, which

circulate in and are customarily used and accepted as money in the

country in which issued. The term `cash' does not include [sic] bullion

coins, such as gold bullion coins issued under the Gold Bullion Act of

1965 [sic], 99 Stat, 1117 [sic], nor does it include commemorative

coins, such as coins issued under the Statue of Liberty-Ellis Island

Commemorative Coin Act, 99 Stat. 113 (1985) [The American Liberty Coin

Act].

But gold and silver American Eagles

are legal tender. Crazy as it sounds, this means that you could walk

into a Mercedes dealership, plunk down 201 American Eagle gold coins

with a face value of $10,050 and a paper money value of F$80,400, and

it wouldn't be a reportable transaction. Wait, kids, don't try this at

home. Repeat: even though the IRS Assistant Chief Counsel says so,

don't rely on it. But it certainly appears that there is a hole in the

cash transaction reporting laws big enough to drive a 747 Jumbo Jet

through. The simple way to avoid (not evade) cash reporting is to use

American Eagle gold coins & silver American Eagles in everyday

transactions.

Crazier still, since Customs is a

part of Treasury, do you suppose that American Eagle gold coins are

exempt from reporting as cash when you leave the country?

Of course it's crazy, but it's the

government, shooting themselves in the toe. They hate gold &

silver, and just because they want to discourage people from using it,

they write it out of their regulations, but only succeed in making gold

and silver more private than their phony paper money.

-- Franklin Sanders

 

Special thanks to the Industry

Council for Tangible Assets, the trade association for gold and silver

dealers for help researching this article. ICTA has done a great job

over the years fighting off Big Brother, and every precious metals

dealer ought to join and support them. ICTA, Box 1365, Severna Park,

Maryland 21146-8365.