A Dollar is a Dollar, Metal or Paper

A Nevada jury acquits or hangs in a multi-defendant trial pivoting largely around whether you owe taxes based on the market value or merely face value of gold and silver money actually coined by the U.S. of A.

See details at this Las Vegas Review Journal article or this We the People Foundation press release. An excerpt from the article:

The Internal Revenue Service had never before provided guidance on how to handle gold and silver coins that circulate, only on noncirculating collectible coins, according to [defense attorney Michael] Kennedy, who is a federal public defender. "If that's the case, we're not going to take someone's liberty from them, on something that a (certified public accountant) with a master's degree doesn't even know. That's a scary country, and I don't live in that country."

The DOJ's press release on the original indictment. Some of the defendants may be tried again.

The case does not represent any major long-term victory for those who argue that we don't owe no income tax nohow, though some in that movement think so, even though some of the charges relate to failure to collect or pay income taxes on the part of employers and employees. It's just a particular decision a particular jury came to. See my 2004 reason feature on such income-tax theorists and activists.

Comments

mike | October 2, 2007, 10:53am | #

Since it's now illegal to melt down pennies and nickels for their base metals, surely it would be inappropriate to tax coins based on anything other than their printed face value. Anything else seems like a blatant and hypocritical cash grab.

Mr. X | October 2, 2007, 10:55am | #

Do you really have to link to a WTP press release? They are so often nothing more than self-serving half truths.

They probably should have been acquitted, since it's a bitch to prove criminal intent in a case where there's no agency guidance. With the hung jury, there will probably be an offer in compromise made with the IRS in exchange for dropping the criminal charges. No reason the defendants should want to roll those dice again.

CoveAxe | October 2, 2007, 10:59am | #

I will gladly buy anyone's gold at face value. Heck, I'll even pay double face value.

Guy Montag | October 2, 2007, 11:12am | #

The case does not represent any major long-term victory for those who argue that we don't owe no income tax nohow, though some in that movement think so, even though some of the charges relate to failure to collect or pay income taxes on the part of employers and employees.

So that quesion of Ohio actually being a State is still not settled? :)

Jay D | October 2, 2007, 11:42am | #

I read a comment discussion on maximum campaign contributions. They were throwing around the idea that someone might donate the maximum of $2,300 in $50 gold eagles at their face value.

Warren | October 2, 2007, 11:43am | #

The Internal Revenue Service had never before provided guidance on how to handle gold and silver coins that circulate, only on noncirculating collectible coins

What circulating coins are they talking about? Liberty Dollars? American Eagles? IIRC they're worth 20x face value.

mike writes:
Since it's now illegal to melt down pennies and nickels for their base metals

Since when? Says who? link?

Rhywun | October 2, 2007, 11:49am | #

I think by "non-circulating collectibles" they mean commemoratives and medals. Everything else is circulating.

IIRC they're worth 20x face value.

? All coins are worth whatever they can fetch on the market, in some cases many times the value of even the metal they are made of.

Jay D | October 2, 2007, 11:52am | #

mike writes:
Since it's now illegal to melt down pennies and nickels for their base metals

Warren:
Since when? Says who? link?

Rhywun | October 2, 2007, 12:02pm | #

"Soaring metals prices mean that the value of the metal in pennies and nickels exceeds the face value of the coins."

So... why are we still minting them? I wonder if aluminum is still cheap.

Travelers may legally carry up to $5 in 1- and 5-cent coins out of the USA

Just... wow.

John-David | October 2, 2007, 12:11pm | #

Regarding melting coins:

I'm sure it's just lazy journalism, but I've never understood when the U.S. Mint got the power to pass laws outlawing the melting of coins.

Guy Montag | October 2, 2007, 12:19pm | #

Amazingly, the right bar shows the perfect combination of advertisement links!

$20 gold coins, Silver Dollars, IRS Tax Help, Bankruptcy Tax help, etc.

Very cool!

Paco | October 2, 2007, 12:27pm | #

It's illegal because the director of the US Mint said so? 5 Years in PMITA, $10000 fine plus confiscation of ill-gotten gains. The Intelligible Principle ruling allows agencies to issue regulations (Congress can delegate legislative duties).

Jay D | October 2, 2007, 12:36pm | #

So... why are we still minting them? I wonder if aluminum is still cheap.

There are plans to change the metal content of all coins. As far as I know, they haven't decided on what metals. Maybe then they will revoke the rule against melting them.

At any rate, when Ron Paul is president, you will be able to melt any coins you want.

CoveAxe | October 2, 2007, 12:37pm | #

They were throwing around the idea that someone might donate the maximum of $2,300 in $50 gold eagles at their face value.

You know, if I were incredibly wealthy and wanted to throw money around like that, I would like to try this.

Guy Montag | October 2, 2007, 12:41pm | #

Ah, back to my (currently) favorite ad, the "Right Shirts Done Right" chick.

Is she in the IDF?

Warren | October 2, 2007, 12:42pm | #

Jay D,
Thanks for the link. Very interesting. I wouldn't have thought the base metal price would have come anywhere near face value, even with a four fold jump in copper.

Continuing to mint coins at less than the cost to produce them, is so very emblematic of the way the Fed mismanages our money.

R C Dean | October 2, 2007, 12:44pm | #

a blatant and hypocritical cash grab

Probably the best short summary of the Internal Revenue Code I have ever seen.

Guy Montag | October 2, 2007, 12:47pm | #

On a serious note, back on topic.

I wonder if this issue would be easier to decide if an employer used his cost of purchasing gold coins for his payroll as his salaries expenses, but reported the face value of the coins to the feds/States for W-2 purposes?

Wouldn't it be the responsibility of the employees to report the additional "income" from the sale of the coins above the face value and no issue with the employer?

There would be that accounting issue between the payroll cost and the payroll distributionm, I am guessing.

Paul | October 2, 2007, 12:51pm | #

Hey, another reason why income tax is immoral, stupid and creates these very problems. National sales taxes fix all of this. No more need for a government agency to define value, market value or intrinsic value as the money comes in-- only on what was paid when it goes out.

pistoffnick | October 2, 2007, 1:03pm | #

Hey, another reason why any tax is immoral, stupid and creates these very problems.

Fixed it for you, no charge!

Guy Montag | October 2, 2007, 1:04pm | #

Paul,

Also another reason to stay off of the commodities standard and stick with fiat (okay, not really "fiat" for you Wikipedia nust, but that other thingie).

heh2k | October 2, 2007, 1:16pm | #

I used to be for national sales tax, til i realized it discourages trade more than income tax. Look at the effect sales tax has on car sales. Your car is immediately worth less the tax cost.

Jay D | October 2, 2007, 1:20pm | #

I really don't understand what kind of case the prosecuter has. All the employees can swear in court the following:

Q: How much did you earn?
A: $X.XX

Q: How were you paid?
A: In US legal tender currency.

Q: Did you pay taxes on $X.XX?
A: Yes.

Syd | October 2, 2007, 1:28pm | #

Warren | October 2, 2007, 12:42pm | #
Jay D,
Thanks for the link. Very interesting. I wouldn't have thought the base metal price would have come anywhere near face value, even with a four fold jump in copper.

Continuing to mint coins at less than the cost to produce them, is so very emblematic of the way the Fed mismanages our money.

Terry Pratchett's most recent Diskworld novel deals with the running of the mints. He points out that although it costs more to mint the coins than their face value, that's not exactly the point. The coins also last for many, many years, and are used in many transactions. (At least nickels are. My pennies tend to wind up in jars until I can exchange them. Besides, you can put a couple of hundred pennies in a sock and use it as a blunt instrument and make a profit that way.)

Nickels in particular are so hard that they last many years. Spending six cents to produce a five-cent coin that will last through several thousand transactions may actually make some sense.

Although it certainly makes more sense to lower the production cost if you can keep the hardness, so I approve of the Treasury changing the composition.

Jay D | October 2, 2007, 1:53pm | #

Syd:
Spending six cents to produce a five-cent coin...

It's not just that it costs more than 5¢ to produce. The final product itself is worth more than 5¢.

There is 6.8¢ worth of copper and nickel in a Nickel. So the value of the Nickel coin is made artificially low by the fact that you can't legally melt it down to access the metals.

robc | October 2, 2007, 2:02pm | #

Travelers may legally carry up to $5 in 1- and 5-cent coins out of the USA


You cant defeat Gresham's Law, no matter how many stupid laws you pass.

Paul | October 2, 2007, 2:09pm | #

I used to be for national sales tax, til i realized it discourages trade more than income tax. Look at the effect sales tax has on car sales. Your car is immediately worth less the tax cost.

Heh2k,

That may be true-- but ultimately, any tax discourages trade. So they should be as uniform (and based on reality) as possible. Also, taxes should be used for revenue, nothing else. Taxes are now used to set policy, something an income tax fuels.

1. What I make and how much is not the governments business, it's not anybody's business.

No, a nat'l sales tax would not be perfect, but could it possibly be less perfect than the abomination that is our income tax system?

2. National sales tax would be very effective in eliminating dodges. The drug dealer and the prostitute pay their taxes because at some point, they have to buy goods.

3. Sales taxes in general are already an established and efffective way for governments to make revenue. The retailer becomes the tax collector.

4. The rich would no longer be able to unfairly shelter their income. If Bill Gates buys a yacht, he pays sales tax on it. Nothing complicated there. He can no longer be a billionaire but yet claim a modest salary.

5. Did I mention that it's not the government's business how much or where I make my money?

6. The government no longer has to start defining "income". No more complicated rules on "gifts", prizes, gambling winnings, property transfers etc. No more arguments about the value, market value or "intrinsic value" of a good or item.

MikeP | October 2, 2007, 2:25pm | #

6. The government no longer has to start defining "income". No more complicated rules on "gifts", prizes, gambling winnings, property transfers etc. No more arguments about the value, market value or "intrinsic value" of a good or item.

Instead, these arguments get replaced with fights over taxes on producer-to-producer relationships wherein someone must define who is a producer or consumer, who is inside or outside a firm, and what other vague value adds there might be.

And don't forget the traumas involved in stopping tax avoidance by barter! Given the ease of setting up trading markets in today's world, you are going to see a lot of electronic clearinghouses where the word "dollar" is never used. Unless of course you outlaw or regulate that trade to death.

Whether consumption taxes are better than income taxes is a worthwhile debate. But it is not a priori obvious that it is that much less invasive than the IRS is or could be under a simpler flat tax.

Jerry | October 2, 2007, 2:52pm | #

I don't see what the problem is. If you sell the gold, you will have to pay more capital gain taxes if you got gold at face value.

Mike Laursen | October 2, 2007, 3:59pm | #

I'm concerned that if it is decided that the coins are to be taxed at face value, someone will pass a law saying the Federal government can demand to reclaim them at face value.

x,y | October 2, 2007, 4:00pm | #

Sounds like a job for Rearden Metal.

Paul | October 2, 2007, 4:09pm | #

And don't forget the traumas involved in stopping tax avoidance by barter! Given the ease of setting up trading markets in today's world, you are going to see a lot of electronic clearinghouses where the word "dollar" is never used. Unless of course you outlaw or regulate that trade to death.

Like all the bartering that goes on now to avoid sales taxes? Bartering in a modern society always has limited results. Sure, you and I may engage in bartering. I'll trade you my 1994 Honda Accord for that 1995 Toyota Camry. Except that's already covered. You pay the taxes when you register the car. But bartering isn't going to be a primary way of moving goods in a complex, post-industrial society.

But it is not a priori obvious that it is that much less invasive than the IRS is or could be under a simpler flat tax.

Given that the government can do anything it wants, and does, no it's not. But there is evidence that it does lead to a less invasive government. Either way, we know that an income tax is an open invitation to all manner of government meddling. That's not up for debate. With a flat tax, the government still has to know how and where you make your money. And the bartering issue you brought up can still occur as a tax dodge.

It's not the government's business where and how I make my money.

grumpy realist | October 2, 2007, 8:34pm | #

Isn't it also the problem that the sales tax would have to be at a strikingly high level (30% or so) in order to raise the same amount of $$? It's also horribly regressive, unless you exempt "necessities" from the tax, which sort of defeats the point.

At a 30% sales tax rate, how long do you think it will be before a sizable number of transactions go "off-line" anyway? I don't see how you can state that the monitoring that would be necessary to make sure such didn't happen isn't "invasive". I think it would be worse than income tax monitoring.

Heck, why not just go to a capital tax? We could get the rates down even lower, encourage spending, and grow the economy!

Bigfoot | October 3, 2007, 8:24am | #

1. But if we move to a sales-tax system, then shopkeepers will find the new system particularly intrusive: because now their transactions will be more closely scrutinized than ever. Hate keeping your own books, business owners? Imagine having Uncle Sam breathing down your neck at EVERY step in the process.
2. The new system would seem to be regressive. If you working joes think cigarettes and gasoline are high now... hoo boy!

James Anderson Merritt | October 3, 2007, 10:00am | #

Mike said, "Anything else seems like a blatant and hypocritical cash grab."

And your point is ... ?

;-)

Alan | October 3, 2007, 5:52pm | #

Any coin or bill minted by the US mint has to be accepted for public or private debt for the amount printed on the face of the coin/bill. The IRS lost this case because they argued that the value of the coin is above the minted value on the coin. There is already existing case law that says that the value of the legal tender is the face value, period! Sorry IRS, cry in your beer and create new IRS code to spell out what is the value of the income from legal tender. I love it when the IRS trips up.

The IRS does not require records for small sales of gold/silver bullion coins. So they would be hard pressed to say that you sold the coins, or that you had any gain without subpeonaing that person's bank records. Which they cannot legally do without reasonable suspicion that a crime has been committed.