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IRAs can buy shares in trust invested in gold without triggering collectibles tax

PLR 201446030

IRS has privately ruled that the acquisition of shares of a trust invested in gold by either an IRA or an individually-directed account under a qualified retirement plan won’t be considered the acquisition of a collectible under Code Sec. 408(m). Thus, the amount invested won’t be treated as distributed under Code Sec. 408(m)(1).

Note: IRS reached this result even though trust shares are designed to mirror the physical market in gold.

Background. The acquisition by an IRA or an individually-directed account under a qualified retirement plan of any collectible is treated as a distribution from the IRA or account in an amount equal to the cost to the IRA or account of the collectible. (Code Sec. 408(m)(1)) A collectible is any work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage, or any other tangible personal property specified by IRS for this purpose. (Code Sec. 408(m)(2)) However, the following are not considered collectibles for this purpose:

  • One, one-half, one-quarter or one-tenth ounce U.S. gold coins;
  • One ounce silver coins minted by the Treasury Department;
  • Any coin issued under the laws of any state;
  • A platinum coin described in 31 USC 5112(k); and
  • Gold, silver, platinum or palladium bullion (other than bullion that is made into a coin) of a certain fineness that is in the physical possession of a trustee that meets the requirements for IRA trustees under Code Sec. 408(a). (Code Sec. 408(m)(3))

Facts. Trust is set up to be a grantor trust (i.e., so that investors in it are treated as owning fractional shares in the assets held by the trust). Its primary objective is to provide investors with an opportunity to invest in gold through shares and be able to take delivery of physical gold bullion in exchange for their shares. Trust’s secondary objective is for the shares to reflect the performance of the price of gold less the expenses of its operations. Trust differs from other exchange-traded vehicles that are based on the price of gold in that every shareholder has the right to request a conversion of shares to physical gold, if the number of shares corresponds to at least one fine ounce of physical gold and has a specified minimum dollar value. The value of Trust’s gold is reported on its website on a daily basis.

Gold (other than certain bars) will be held solely for delivery to investors who apply to take delivery of gold in exchange for their shares. However, a holder of shares, including a retirement account, will not have an immediate possessory interest in, or unilateral right to take possession of, the physical gold represented by the shares it holds.

Trust does not issue or redeem individual shares. Instead, the shares are to be listed and traded on a stock exchange, which allows trading by authorized broker-dealers. Thus, investors, including retirement accounts, normally would buy shares through a broker-dealer, as they would any other security, and the retirement account’s ownership is evidenced only on the books and records of the broker-dealer through which the shares are purchased.

When Trust terminates, its trustee will sell the assets and deliver to those surrendering their shares their pro rata portion of the net proceeds.

Favorable rulings. IRS concluded that the acquisition of shares in Trust by a trustee or custodian of an IRA or by an individually-directed qualified plan account won’t be considered the acquisition of a collectible under Code Sec. 408(m). As a result, an IRA or individually-directed account in a qualified plan acquiring such shares won’t be treated as having made a distribution under Code Sec. 408(m)(1). However, if any shares held in the account are exchanged for gold, the exchange would be treated as the acquisition of a collectible for purposes of Code Sec. 408(m)(2), and therefore a distribution from the account, except to the extent the gold acquired by the account satisfies Code Sec. 408(m)(3).

Note: Thus, a taxpayer who wishes to place some of his IRA funds into gold without running afoul of the collectibles rules can do so by acquiring shares in a properly-structured trust invested in gold.
Caution: Before doing so, taxpayers should demand an assurance from the trust that purchasing such shares won’t trigger the adverse collectibles rules. The best assurance would be a private ruling from IRS, but an opinion of counsel may be enough to satisfy some investors.

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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