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Tax Statutes and Regulations

1031 Exchange Services - Precious Metals Exchange

Tax Statutes and Regulations

Are all Cases and Rulings equal?

In the U.S. legal system, there are 2 kinds of legal authority: binding authority and persuasive authority. Binding authority must be followed. Persuasive authority is everything else and does not command equal respect and deference. When reading articles, court cases and administrative tax rulings it is important to understand whether they are legally binding to your situation. Many of these materials may not be applicable, irrelevant, or overruled.

In the case of precious metal exchanges, while revised 1991 tax regulations provided the “similar nature and character test” there are no examples provided for personal property exchanges. The existing 4 administrative rulings are not legally binding on the courts. They represent expressions of the opinion of a particular government lawyer on a narrow set of facts back in the mid 1970’s and early 1980s.

To provide an idea as to the state of affairs in 1974, the first year the revenue ruling was issued, it was generally illegal for an American to own American gold coins for 40 years before January 1, 1974. American could only purchase foreign gold coins as long as they were already in the country. Coins and bars brought over the border could and were confiscated by the government. This led to an inefficient market and higher than normal premiums for coins located in the United States until 1987. The American government did not begin to produce the Gold and Silver Eagles until 1986. The investment market for precious metal for investors barely existed. Individual Retirement Accounts were only permitted to invest in American Eagles after November 1, 1988. The US mint sold 36 million ounces of gold and silver in 2010, up 27% from 2009. The US mint has produced 224 million silver bullion coins since 1986 and the Gold Eagle is the largest selling gold coin in the world.

The only way to approach a precious metal exchange is to rely on an experienced tax expert/ exchange expert. By analyzing the facts and the law, you will be able to rely on their expert tax opinion to protect your exchange.

Order of Binding Authority

  1. Current Tax Statute, such as Section 1031 of the Internal Revenue Code
  2. Income Tax Regulations, such as Treasury Regulations 1.1031(a)-2
  3. Opinions of Courts with jurisdiction over your case w/ the same facts and same issues. for example, United States Supreme Court, the U.S. District Court for your place of residence, U.S. Tax Court

Non-binding Authority

Opinions of Courts that do not have jurisdiction over your case.

Administrative Rulings, such as revenue rulings are not binding. In litigation, revenue rulings are not binding on a court and do not have the force and effect of law or the authoritative weight of regulations.1

Private Letter Ruling may not be cited as precedent in any situation other than the taxpayer to whom it was provided. It may indicate the ruling posture of the IRS if it was recently issued. Private letter rulings issued over 10 years ago have no relevance.

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