by John Galt
January 7, 2013 05:00 ET
This is part two of a fifteen part series.
One day Jack and Jill went down the hill to sell Grandma’s gold coins they inherited to raise money to help pay for groceries and rent. It wasn’t much that they wished to sell, just a few fractional pieces worth around $800 according to what some knowledgeable friends told them. When they entered the coin shop in their home town to sell these coins, the dealer started asking a series of probing questions about how they obtained the coins, how long they have owned them, what dealer they purchased them from, etc. The questions started then to probe their grandmother’s ownership of the coins and finally, the forms required by the U.S. Department of the Treasury and I.R.S.
The form seemed fairly standard, asking about their names, addresses, etc. But after the usual personal information, a series of boxes they were required to fill out started to upset them:
TAXPAYER IDENTIFICATION NUMBER (T.I.N.) OR SOCIAL SECURITY NUMBER OF SELLER
DURATION OF OWNERSHIP OF ITEMS TO BE SOLD (LIST ALL ITEMS, 1 PER BOX; IF MORE THAN TEN ITEMS, USE REVERSE SIDE TO LIST UP TO 25 MORE)
ORIGINAL PURCHASE PRICE OF PRECIOUS METALS TO BE SOLD
ORIGINAL SELLER OF PRECIOUS METALS SOLD TO T.I.N. LISTED
ORIGINAL SELLER T.I.N. (IF AVAILABLE)
I.R.S. P.M.S.N. (INTERNAL REVENUE SERVICE PRECIOUS METAL SERIAL NUMBER) FOR EACH ITEM (IF UNASSIGNED BUYER HAS 14 DAYS TO REGISTER ITEMS WITH IRSPMSN ONLINE REGISTRATION SYSTEM)
Jack looked at the coin dealer and snapped in an incensed tone, “what business is this of yours? Why does the IRS or the government care what my grandmother or anyone pays from old gold and silver coins? And just what happens when this information is received by the Internal Revenue Service?” The dealer sighed, “Look son, I get this question every time someone attempts to walk in the door and the minute you sign the resale agreement and I hand you the check voucher which you can cash after receiving the PMSN documents in the mail from me, you are a legal seller. I’m just trying to make a living and get by in this world. If I fail to give you the necessary forms before I pay you I can to to jail for five years per coin. I’m ready to quit this business after gold tops $4000 per ounce again but right now, we are all working for the man. Here’s a brochure which explains it all.”
Jack took the brochure from the dealer’s hand and started to browse through the twelve page document. He mumbled to himself when suddenly he blurted an obscenity then said to the dealers, “Why in God’s name am I going to get a 1099-IP and why will I have to account for imputed earnings on these metals?” The dealer took a loud slurp of coffee, swallowed, then took a deep breath and recited the information just as he received it at the IRS seminar for dealers last spring, “Sir, I’m not responsible for your taxation, the filing of your taxes, or the imputed earnings you obtained while owning these precious metals. Even though these coins were exempted under the 1933 Executive Order 6102, there are no numismatic exemptions under the new law. The new order was retroactive to January 1, 2013 hence all precious metals which gained in value from that date forward are owed taxes as imputed income is now calculated on all gold, silver, platinum, and palladium in the form of coinage, collectibles, bullion, or investment certificates. Please contact your tax preparer for more information on the correct methodology for calculating the imputed capital gains taxes owed. Do you wish to proceed with the sale of these coins to my dealership sir and ma’am?”
The story above is fiction; at least as of today.
However, given the creative methodology and search for income underway within the halls of our government it is not unreasonable to assume that hard assets which only pass from generation to generation or sit idle in safes, safety deposit boxes, and mason jars buried in back yards have appreciated in value yet the government collects nothing, zero, zip, nada in taxes or revenue due to the nature of the materials and how business is conducted with the physical metals. Thus the dilemma for the future as if the Obama administration resurrects its war on gold just as it has with its war on guns, it will be a matter of months instead of years before a “Gold Registration Act” is passed forcing people to pay taxes on imputed income and register their ownership of what they will call “investment vehicles.”
Why does the government need an accounting of hard assets? The current system outside of the Wall Street/COMEX casino is basically the last bastion of unregulated capitalism. There are no serial numbers on raw bullion, silver or gold coins unless they are slabbed, and the majority of transactions occur via cash, cashier’s checks, or wire without inventory of items purchased down to the individual ounce or fraction thereof. If each item had to be registered with the government, it could be tracked and hence taxed.
Using that concept, let’s assume that the fictional character Jill from above decides to buy ten Silver American Eagles (SAEs). If each had a registration or serial number assigned to them for tracking purposes and she held them until the end of the year from a purchase date in say February, the government could calculated imputed taxes due from the purchase date until the end of the tax year. Hence a tax bill or 1099 form of some sort is mailed to the taxpayer along with instructions for calculating the taxes owed and voila, more revenue to be collected on imputed income even though she only saw a 12% appreciation in value of the items (for example) and never engaged in another transaction with the coins. This nightmare would be enough to force many into the black market overnight but it would have a much greater chilling effect than that within the dealership community.
The threat of being audited, arrested, and having personal assets seized by such a registration and taxation act will cause thousands of lawful legal precious metal and coin dealerships to shut down nationwide. The methodology will be similar to the intimidation tactic currently being used and developed to spook gun dealers to give up their Federal Firearms Licenses and reduce the availability of firearms to the American public. The lesson that has been learned since 1933 was that confiscation is a failed concept be it firearms or gold so a new solution was necessary:
Why and how does the government vilify precious metals owners? Based on the characterizations and falsehoods being announced about gun shows, gun shops, and firearms owners it would not take much effort working with the mainstream media. The “poor” will be presented as not having a “fair” opportunity to obtain hard assets like precious metals and the owners implicated as wealthy hoarders wishing to prevent equal distribution of a limited asset by keeping prices artificially high by limiting supply. The next phase will be some phony campaign created to paint the possession of metals and failure to report said ownership as a new class of criminal tax evaders. The public will be whipped into a frenzy as the budget balancing debate intensifies along with the debt ceiling debate and new sources of revenue explored. Imagine the hue and cry if the anti-metals crowd started portraying those who “hoard” gold and silver as starving the elderly by keeping Social Security from being fully funded.
While such a program does not exist at this time, the idea was tested a a part of the Obamacare law in 2010. The backlash against the $600 limit and issuance of 1099′s caused every small time dealer and precious metals buyer to raise holy hell about the law and force a repeal. With the war on wealth and capitalism accelerating in 2013 and the President having almost unlimited powers to govern, I believe the Executive Order route for simply demanding registration, not confiscation is a viable starting point for this extremist government to begin the new avenue for future taxation and control of transactions of all precious metals. Unfortunately for precious metals buyers and sellers, there will be no “Sandy Hook” type of event to warn of the impending assault on our freedoms. It will simply arrive at the coin dealer’s mail box in the form of a letter with instructions from the Internal Revenue Service.
Finally, there is a necessary evil behind the implementation of such an act. Until all sources of revenue are maximized and all assets registered for monitoring within the Federal control matrix, the evolution of a totally cashless society or digital currency will be almost impossible. To prevent the greatest number of individuals from slipping back into the black market economy and evading the digital system, controls must be almost airtight to ensure that at a minimum there is a 95% participation rate. Criminalizing every activity which avoids taxes, be they real or implied, is the only method left to guarantee Americans actively “volunteer” to pay their tribute be it electronically or via economic participation within the system.