Home | Index & Archives | Contributing Writers | Power Elite Playbook | Writers Wanted | Awards | News Tips | Subscriptions | Muckraker Report T-Shirts | News Sources / Links | Contacts | Legal Disclaimer | Search
muckrakerreport.com
American Gold Eagle preys upon the IRS


Ed Haas

American Gold Eagle preys upon the IRS 

March 4, 2008 – If a homeowner hires a handyman to do some work around his or her house, and pays for the handyman’s services with a $50 bill, how much would the handyman claim as income for tax purposes?  According to IRS tax assistance representative, Bob Knierim, the handyman would need to claim the $50 dollars as income. 

But what if the homeowner paid the handyman with a circulated $50 American Gold Eagle?  According to Knierim, who the Muckraker Report interviewed on February 21, 2008, the handyman would be required to pay the market value rather than face value of the $50 dollar gold coin.  The market value of $50.00 American Gold Eagle coins changes daily, but at last check, was approximately $980.00.

When pressed for the tax law or rule that supports the IRS claim that taxpayers are required to claim face value on certain legal tender and market value on others, Knierim referenced Publication 17 as the “catch-all” for “these types of tax questions”. 

Indeed, Publication 17, in the section, Miscellaneous Deductions, does address gold coins, usually in the context of holding them as collectables and investments.  For example, a rare, non-circulating gold coin would be considered a capital asset, similar to gems, jewelry, stamps, antique household furnishing, and stocks and bonds.  These types of items are defined by the IRS as investment property, and investment property is considered a capital asset. 

However, in the scenario of being paid for services rendered, the handyman was not holding the American Gold Eagle as an investment – the handyman was holding it as legal tender in exchange for labor. 

2007 American Gold Eagle

$50 (back) click for larger view

The American Gold Eagle is legal tender just like a quarter, dime, nickel, or penny.  The 1-oz Gold Eagle has a face value of $50.  The -oz Gold Eagle has a face value of $25.  Minted at West Point, NY, also available is a -oz Gold Eagle with a face value of $15 and a 1/10-oz Gold Eagle with a face value of $5.  The U.S. Government introduced the American Gold Eagle in 1986.  The 1-oz American Gold Eagle contains exactly 1-oz of 22-karat gold. 

Can the IRS have it both ways?  Can the IRS claim that taxpayers must pay face value on certain legal tender and market value on others.  When questioned about a more specific rule that directly addressed this type of tax question, Knierim admitted that no rule existed. 

The Muckraker Report asked Knierim what the market value of a $50 bill was in today’s market.  He could not say.  When confronted with the fact that the cost for the materials used to produce a $50 bill amounted to approximately 6 cents, Knierim conceded the point while insisting that for tax purposes, circulating gold coins fall under a different category.  The Muckraker Report asked, “A category in which there is not a specific rule or law that defines the category?”  Knierim answered, “yes”. 

The IRS is once again on a slippery slope.  The U.S. Constitution requires the minting and circulating of coinage, as demand requires.  It also is required that the coins be assigned a value for the purpose of legal tender.  That value, the face value, is the amount stamped on the coin.  The back of a quarter is stamped with quarter dollar.  The back of a nickel is stamped with five cents.  The market value of these coins is irreverent when used as legal tender.  When presented for a purchase, or when received as a wage, legal tender laws require that they be accepted at face value. 

Imagine paying taxes on the market value of cash!  It costs the Federal Reserve approximately 6 cents to produce any bill, regardless of face value.  If you earned $75,000.00 in wages last year, paid to you in Federal Reserve Debt Notes (paper money), the market, intrinsic value of the money received is approximately $4500.00 dollars if paid in $1 bills.  No doubt, the IRS opposes any suggestion that taxpayers paid in fiat paper money should be allowed to only pay tax on the intrinsic value of the currency.  Clearly the IRS expects taxpayers to pay face value on their worth less dollars.

The market value of a $100 bill is 6 cents.  The market value of a $20 bill is 6 cents.  The market value of a $1 bill is 6 cents.  After all, paper currency is no longer backed by gold or silver in the United States.  It’s just paper and ink today with some fancy artwork and anti-counterfeiting measures installed to prevent unauthorized counterfeiting.  A great argument can be made that those printing the bills are master counterfeiters themselves. 

Not so long ago, U.S. paper currency was called a Silver Certificate. The face of a 1957 $1 bill read:

This certifies that there is on deposit in the Treasury of the United States of America, One Dollar in Silver payable to the Bearer on Demand. 

Article continues below...

1957 One Dollar Silver Certificate

According to Knierim, the IRS can have it both ways.  It can require taxpayers to claim face value on a $20 bill rather than its intrinsic value, which is approximately 6 cents, while requiring taxpayers to claim market value on $50 American Gold Eagle, which is nearly $1000.00 today. 

While the IRS might want to believe it can operate in its own orbit, the law appears to be on the people’s side on this issue.  In 1910, see Ling Su Fan v. U.S., 218 US 302, the legal distinction of coins, the distinction in which the IRS now claims it has no specific rule, clearly dictated:

These limitations are due to the fact that public law gives to such coinage a value which does not attach as a mere consequence of intrinsic value.  Their quality as legal tender is an attribute of law aside from their bullion value.  They bear, therefore, the impress of sovereign power, which fixes value and authorizes their use in exchange. 

In Thompson v. Butler, 95 US 694 (1987) the courts wrote:

A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar.  The law has not made the note a standard of value any more than coin.  It is true that in the market, as an article of merchandise, one is of greater value than the other; but as money, that is to say, as a medium of exchange, the law makes no difference between them. 

There is a recent case in point as reported by the Las Vegas Review Journal.  Known as the Kahre Case, on September 20, 2007 the Review Journal reported that a jury hung on 161 charges of income tax invasion and conspiracy faced by nine defendants.  Robert Kahre, a local business owner was paying his employees with circulating gold and silver coins.  The defendants in the trial had not paid taxes according to the market value of the gold and silver coins.  The defendants relied upon the face value of the coins for tax purposes. 

Defense Attorney Michael Kennedy confirmed what the IRS told the Muckraker Report – the Internal Revenue Service had never before provided guidance on how to handle gold and silver coins that circulate, only on non-circulating collectable coins. 

When the Muckraker Report informed IRS representative Bob Knierim of the recent outcome in the Kahre case, Knierim said, “That case does not establish a legal precedent” and “The IRS is free to charge others that might attempt the same thing.” 

Leaving such unfettered discretion in the hands of the IRS is clearly a mistake given the fact that legal precedent has already been established:

A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar.  The law has not made the note a standard of value any more than coin.  It is true that in the market, as an article of merchandise, one is of greater value than the other; but as money, that is to say, as a medium of exchange, the law makes no difference between them. 

The defense rests.  The IRS cannot have it both ways.  Yet it will continue to try through malicious prosecutions that cost American taxpayers tens of thousands to defend against, even though such cases should be immediately dismissed upon filing for lack of evidence and standing.

If you enjoyed this article, please consider donating to the MUCKRAKER REPORT.
Your donations keep the Muckraker Report subscription free!

To comment or request reprint permission, please contact Ed Haas via e-mail.

 Subscribe to Muckraker Report RSS Feed


Copyright 2002-2008 by MUCKRAKER REPORT.
All rights reserved.
For re-print permission, contact Ed Haas: (843) 817-9962.