Ed Haas

IRS delivers stunning reversal on the American Gold Eagle / Income Tax Question

March 22, 2008 – Earlier this month the Muckraker Report published an article titled American Gold Eagle preys upon the IRS. In the article, the question regarding how much income needed to be claimed on a tax return when a taxpayer received an American Gold Eagle coin as pay for labor / services was examined.

On February 21, 2008, IRS tax assistance representative Bob Knierim told the Muckraker Report that if a taxpayer received a $50 American Gold Eagle in exchange for labor / services, the taxpayer would be required to claim market value of the coin rather than the legal tender value of $50. Market value of gold changes daily. The market value of a $50 American Gold Eagle is approximately $920 today. A few weeks ago it was over $1000.

Knierim was wrong.

It should be noted that if a $50 American Gold Eagle is presented to a clerk at a convenience store for the purchase of $20 worth of goods, legal tender laws dictate that the clerk deliver $30 in change, and not change based on the market value of the coin.

In preparation for the American Gold Eagle preys upon the IRS story, the Muckraker Report sent a question via e-mail to the IRS through its online Tax Help resource. After a few days of waiting for a response, an e-mail from the IRS was received in which it indicated that due to the difficultly of the question, the IRS would require additional time to research before providing an answer. Facing a deadline, the Muckraker Report called the Tax Help resource and was able to get Bob Knierim on the record for the previous article. However, on March 8, 2008 the IRS finally was able to provide an e-mail response and answer to this question:

If I received a $50 American Gold Eagle (legal tender) as a wage, would I need to claim $50 on my tax return or the market value? Today, the $50 American Gold Eagle was selling for approximately $980.00.

The IRS wrote:

You will only be reporting your wages of $50. The American Gold Eagle is now your capital asset (collectible), and any gain or loss on the coin will not be reported as income or loss until you dispose of the coin.

(Scan of actual IRS e-mail response is located at the end of this article)

While the Muckraker Report disagrees with the IRS claim that the coin ‘now’ becomes a collectible any more than a penny, nickel, dime, or quarter, after all, the American Gold Eagle is a circulating coin and legal tender; the fact that taxpayers are only required to claim $50 as income on it opens up significant opportunities for those who find the federal income tax repugnant, unlawful, and unconstitutional to avoid paying as much, if any federal income tax.

As for the capital gain tax exposure, if the taxpayer makes arrangements to have a portion or all of his or her pay made in American Gold Eagles and holds the coins as long-term savings, for all practical and legal purposes, the taxpayer can avoid paying any tax on that portion of his or her wages.

It also creates the opportunity for those that think the Social Security tax is repugnant, unlawful, and unconstitutional to pay much less if any at all. Social Security tax is pegged at approximately 15% for most middle class wage earners on a payroll. The employer pays approximately 7.5% and 7.5% comes out of the employee paycheck. The percentage is based on gross income. The self-employed are required to pay 15.3% towards Social Security.

If a payroll taxpayer earns $50 thousand annually, the taxpayer is taxed approximately $3750 per year for Social Security. The employer is required to pay the remaining $3750 on behalf of the employee. However, if that same taxpayer had been paid in $50 American Gold Eagles, considering the market value of the coin to be $1000 per piece, for income tax purposes there would be no income tax requirement whatsoever because of the minimal earnings, and little if any Social Security tax burden.

An annual salary of $50 thousand equates to $2.5 thousand if paid in $50 American Gold Eagles, if the market value is $1000 for each coin. Imagine the withholding savings!

Clearly, the opportunities to legally avoid federal tax – social and income, socialists and big federal government supporters call these opportunities tax loopholes, versus being criminally charged with tax evasion, are abundant simply by receiving and holding American Gold Eagles. This approach just might be a legal way for Americans firmly grounded in the U.S. Constitution’s original intent to no longer fund creeping fascism, tyranny, and imperialism at the fraudulent, corporate federal level.

There are potential downsides to be considered. Employers will have the issue of minimum wage laws to overcome. Both employers and the self-employed will have the risk of the value of gold plummeted because of Federal Reserve manipulation of the stock market, money supply, and interest rates, in additional to bailouts and constant gross intrusions upon free market fluctuations – all the more reason to immediately abolish the Federal Reserve System, allow the banks that should fail, to fail, and build anew, a monetary system based upon gold or silver.

Few employers will wrap their minds around the benefits of the American Gold Eagle. However, for the self-employed with patriotic workers and patriotic customers, the opportunity to exchange labor / services for American Gold Eagles now exists with a clear tax burden reducing benefit to consider. For the right Americans in the right situations, this appears to be a tax-reducing breakthrough that is not an illegal tax scheme.

On a final note, capital gains may be taxed at 5, 15, 25 or 28 percent, or a combination of rates. The taxpayer's income level generally determines which capital gains rate is owed. If paid in $50 American Gold Eagles, a $50 thousand salary, based on the market value of the coins being $1000, equates to an income level of $2500 annually. Consequently, the capital gains tax would, in most circumstances, be an amount much less than the combined federal income tax and social security withholding.