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Gold is taxing Form 8621

sma3
in Other Investing
FYI for anyone interested in investing in Gold and other precious metals.

I have had small amounts in Gold over the years and have discovered several irritating tax issues.

GLD pays for it's expenses buy selling a bit of the gold every month. This generates income for you the fund owner that has to be calculated and reported, usually as short term if I remember

Last year I decided to buy some PHYS Sprott Physical Gold Fund and the website promised that if you complete a form 8621 you can avoid paying the 28% long term tax rate on collectibles.

This is true, but 8621 is a real PIA that makes K-1 look simple. I think I figured it out, but it has to be filed with your 1040 and TurboTax will not support it. So you have to file by paper.

Sprott is considered a foreign investment, even though it is traded in US.


Comments

  • yogibearbullyogibearbull
    Search "PFIC" tax issues.

    Most foreign funds that hold property or physical commodities are PFICs for the US investors. This is because the US laws/regulations for funds are quite different from those elsewhere, and the PFIC designation prevents bypassing those by simply having a fund incorporated elsewhere but made accessible to the US investors.

    One immediate implication of the PFIC treatment is that unrealized gains/losses must flow through fund's earnings or income statements. So, such funds may have very lumpy distributions. This doesn't matter for gold/silver bullion funds (topic of the OP), but may be relevant for foreign income funds that may hold real estate, etc.

    Form 8621 https://www.irs.gov/pub/irs-pdf/f8621.pdf
  • sma3
    I have decided the agony of paper filings is not worth the difference in possible performance for PHYS, vs other funds in taxable account. Since I have to file on paper anyway for 2023, and I have a gain I will wait until either gold drops a bit and sell for a loss, or sell higher late in the year.

    The IRS regs say if you dont file 8621, they can claw back your entire gain and then some. If I have a loss, they probably dont care. It is small potatoes, and with the IRS in such shambles very unlikely to be an issue but why take the chance?

    Bloomberg has great article on chaos at IRS but behind their paywall.
  • hank
    Sorry for the tax mess. Thanks for posting. Picked up a couple collectible U.S. coins several years ago. Have appreciated nicely. Assumed long term cap gains would apply. But if the tax hit is 28% (sounds like it), am better off hanging on.

    Fortunately there are many avenues to p/c exposure that don’t suffer a tax hit if held in a tax sheltered / deferred account. Degree of risk / volatility varies by type of investment.
  • sma3
    I am pretty sure coins are taxed at 28%
    I have heard dealer mark ups etc make coins less attractive than ETfs or mutual funds
  • msf
    Bloomberg has great article on chaos at IRS but behind their paywall.

    The Washington Post has a great op-ed along with pictures about how archaic the IRS system is (dating back to the 1970s, though they do have a computer running Windows XP). I believe that one can read a limited number of WP articles for free.
    As of July 29, the IRS had a backlog of 10.2 million unprocessed individual returns. Blame the pandemic, sure, but also the agency’s embarrassingly outdated, paper-based system, which leaves stacks and stacks of returns cluttering shelves, hallways and even the cafeteria.
    https://www.washingtonpost.com/opinions/interactive/2022/irs-pipeline-tax-return-delays/
  • sma3
    I saw that one

    FYI for all the opponents of the increased IRS budget, please remember that the chaos the GOP IRS budget cuts have caused has direct and significant negative impacts on average Americans.

    My sisters and I are waiting for my deceased mother's refund ( $20,000) from her 2020 and 2021 taxes. She died over two years ago and we were required to file on paper.

    I have called the IRS several times and have gotten conflicting advice about what to do. During the last call ( which takes hours) a very competent man confirmed they had the returns but they have to be processed by hand. He cold not tell me how long it would take, but wanted to make sure that this was not causing us significant financial distress.

    What if we needed the money? Of course when we get it, it will not be paid with interest.
  • AnnaAnna
    @msf Yes, my 2021 taxes are in the same quagmire as your deceased mother's. Last month, I finally was told by the call center representative that it is not even assigned to a processor yet. The 2022, however, went smoothly through the system even though he died in 2022 and not in 2021. They told me they need to use manual processing for 2021 and issue a snail mail check. I told them if they had processed it timely, he would have been alive when they issued the refund; so, they, not his death, was the source of the problem. The requested direct deposit account for 2021 was the same one they deposited the 2022 refund into, no problem.

    (Actually, I feel sorry for the people who work for the IRS right now.)
  • hank
    Maybe the IRS is hiring the ones that couldn’t cut the mustard at TRP.
  • ronorono
    Howdy all,

    Gold and Silver, etc; are taxed at 28% - the collectible rate. Always hold paper bullion in a tax exempt or deferred account.

    and so it goes,

    rono
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