The Curious Problem of Gold and Silver Coins as Legal U.S. Tender 40 comments
- Profile & More Articles
- Tim's blog: The Mess That Greenspan Made
- Subscribe to Iacono Research
an article to
-
Font Size:
-
Print
- TweetThis
The idea that gold and silver coins are still legal tender in the U.S. has always struck me as one of the more intriguing aspects of our monetary system, a system that appears to teeter a bit more each and every year, its fate sure to be the same as all prior fiat money systems throughout history - they never end well. Robert Kahre, who owns numerous construction businesses in Las Vegas, is standing trial on 57 counts of income tax evasion, tax fraud and criminal conspiracy. If convicted on most counts, he could live out his life in prison.
The notion that a quarter or a dime from the 1950s or early-1960s that contains 90 percent silver might be worth ten times its face value seems like more of an oddity than anything else since the values are so small.
A dime being worth more than a dollar really isn't that big a deal until you get a whole bag full of them. Then you can sell these coins with a face value of $1,000 for more than $10,000 (maybe $11,000 by the end of the day given how metal prices are soaring).
The name "junk silver" really doesn't do these coins justice as the real "junk" is clearly what followed silver quarters and silver dimes, the citizenry promptly removing them from circulation after the government discontinued them - something about bad money forcing out good money as Gresham once said.
But, gold presents a whole new set of math.
Currently about 63 times as valuable as silver by the ounce (roughly $960 an ounce versus $15 an ounce), the U.S. Mint continues to produce these coins with dollar values printed right on their face.
As shown to the right, a one-ounce American Eagle will get you $50 if you take it to a bank, but, if you wander into a coin shop, you'll be able to get almost 20 times that amount.
Though it's not clear what a bank teller would actually do if confronted with a customer seeking to make such a deposit (a smart one would surely exchange some of their own paper money and pocket the difference), it sets up a host of other odd possibilities.
Say, for example, you wanted to buy a house that costs $400,000 in paper money using gold coins. Could you specify the purchase price as $20,000 payable in gold coins?
That would surely create some interesting questions as far as the Internal Revenue Service was concerned and both the buyer and the seller would likely watch the gold price like a hawk, probably demanding an exceptionally quick escrow.
What if you ran an entire business where payroll transactions were based exclusively on these "legal tender" gold coins? All of a sudden, a salary of $40,000 would turn into income of just $2,000 and Uncle Sam would surely not be happy about the tax implications of that adjustment.
Well, there just so happens to be such a business in Nevada and, according to this report in the Las Vegas Review Journal, many of the above questions are about to be answered as they are about to have their day in court.
Fascinating stuff...
But attorney William Cohan paints Kahre as an American "hero" who believes his payroll system helped keep the U.S. monetary system sound, and was also a form of legal tax avoidance.
A self-made entrepreneur, Kahre, 48, paid his workers in gold and silver coin, and said they could go by the coins' face value -- rather than the much higher market value of their precious metal content -- for federal tax purposes. He did not withhold taxes from their wages, and he provided the same payroll system to 35 outside clients, which were other local businesses.
...
Kahre contends his workers had agreed to be independent contractors, so he did not have to withhold taxes for them. His six businesses are in the trades of painting, drywall, tiling, plumbing, heating-cooling and electrical work.
Further, the $50 gold coins and the silver dollars Kahre used for payroll are designated by Congress as legal tender, so people are entitled to value them at their stamped denominations, he also contends. Taken at face value, each defendant's annual coin income placed him below the threshold for filing a federal tax return.
...
Cohan described Kahre's payroll system as a "boycott of the Federal Reserve." But when the lawyer attempted to elaborate on Kahre's view that the nation has debased its paper currency by abandoning its former gold standard, Ezra added, "We're not here to convince the jury that the ... (U.S.) monetary system belongs to an international cabal."
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
On May 31 04:52 PM BreH wrote:
> Do realize that there are two levels at play here. The instinctive,
> animal level, where we want to punish those who have done us wrong,
> while those who have done us wrong have done it following their animal
> desires. There is also the rational level, of which to I am referring
> to above. Realistically, I know the beast in us will take over and
> this will end like it did in France in the 1790's. I will, however,
> not be the one holding the sword.
>
> I came across this cool finance site..check it out url.moosaico.com/10424
> beats those slow news days
And they won 0 of 160. Very impressive.
At the end of the day, profit trumps convenience.
On May 31 06:07 AM Chandragupta wrote:
> Interesting. Though Gold (or Silver) may not completely replace paper
> money due to the sheer convenience of using the latter in trade and
> accounting, a return to some form of a Gold Standard seems a very
> real possibility now. A string of "honest money" bills introduced
> in a few states is one clear indication of this.
Another time when the Feds got really unhappy was with Las Vegas also back sometime in the 70's. Casino chips were used as money and traded pretty freely. You could take one casino's chips, walk down the block and play with them at another casino as if they were effectively cash. You could buy groceries or do darn near anything with the chips as both people and businesses had full faith and confidence that the casino that issued the chip would give the right amount of US Currency for it when asked to. The Feds came down and said that the entire town was counterfieting on a massive scale and it would be serious trouble if the city and the casino's did not stop the fooling around. They finally passed rules that said that you had to cash in your chips before you left each casino and businesses could not accept chips as cash anymore. So it has been done before with much less behind it then Gold and Silver. It is just that the Feds have no sense of humor about anyone else doing the counterfieting - they want to be the only ones doing it. LOL!
Just ask the folks at Waco.
en.wikipedia.org/wiki/...
www.law.cornell.edu/us...
www.law.cornell.edu/us...
www.law.cornell.edu/us...
www.law.cornell.edu/us...
I'm not a lawyer (or even close) but it does seem like our fair Congress has defined the $50 gold coin as legal tender.
I doubt a judge with political ambitions is going to give this a fair hearing though...on the other hand, the judge might be too clueless to understand the implications of the case.
And yes there is the oh-so-fair "collectables" tax. At least it would have the virtue of simplicity ("gimme 28% of your munny", says Uncle Sam) over a more conventional tax filing.
I actually asked my accountant a few months back about the notion of using "goldgrams" (from Turk's company GoldMoney) as an optional trade unit for optional use by my international customers. And how that would work within the context of keeping the books. Imagine my surprise when instead of looking at me like a loon (which I expected), he sadly shook his head. Turns out he's a long time closet Ayn Rand fan, a fact I never knew before.
At least they were actual circulating currency (unlike Gold/Silver Eagles) and you can still find one in circulation, if you are lucky.
If a worker says, pay me in X amount of 1964 Kennedy halves, it is his choice to be paid that way and so he would only have to declare the face amount for taxes.
Just because he can sell them for more due to their 90% Silver content has no bearing on their officially determined value as legal tender in the U.S., i.e., 50 cents versus about $6 in the ebay world.
Lets say he decides to sell his current base metal coins for their intrinsic value, would he be able to claim a tax loss? Of course not.
So, he should not have a capital gain on his transactions using Kennedy halves if a buyer is willing to pay more than the face value.
What is the difference from a legal tender stand point? Legal tender is legal tender. Period. If the US says it is only worth 50 cents, then it is only worth 50 cents to them.
What you do after you declare that 50 cents of taxable income is then outside of any official dealings with the US.
The strange thing is, as mentioned by commentors, this case or amended IRS laws regarding gold coins breaks the nice little mental charade that they play with the public to imply that money still has some tie to precious metals. Maybe it's best if they let this stuff slide after all.
Anyone voting guilty in this case is guilty themselves of ignorance and/or stupidity.
Thanks for the article.
Last time I heard about junk silver coins was from Howard Ruff when the sky was last falling (1979). He recommended buying it to use when fiat money broke down and you didn't want to ask for change for your gold bar.
Interesting laws.
Apparently the Gold Coin Act of 1985 was to enforce the face or tender value of the coin, rather than the intrinsic or bullion value.
The Coin Act of 1965 is the one that reduced the silver in coins in response to intrinsic value exceeding tender value and "shortages".
As the USD goes lower, it's becoming harder to find cheap enough metal to make coins from. The new Lincoln pennies look and feel like trash.
On May 31 02:49 PM Angel Martin wrote:
> If everyone starts doing this we will have a 20:1 deflation. Both
> goldbugs and deflationists will be vindicated. Gov't revenues, however
> will drop by 95%.
www.lvrj.com/news/9893...
On Jun 01 02:08 AM TinyTim wrote:
> mbkelly75 - thanks for the update. I remember those days in Vegas.
> I know you can still use chips in casino restaurants and gift shops,
> but didn't know they were now non-transferable.
>
> Last time I heard about junk silver coins was from Howard Ruff when
> the sky was last falling (1979). He recommended buying it to use
> when fiat money broke down and you didn't want to ask for change
> for your gold bar.
The rest are sheeple.
On May 31 04:16 PM Jimbo wrote:
> The news blackout doesn't surprise me. I think most rather experienced
> persons have learned to regard our news media the same way people
> in the old Soviet Union did (and probably do now). "I pretend to
> work and they pretend to pay me"
if the US gov never inteded these coins to be legal tender, they should have said so on the coin itself. =)
No contract stipulating payment in legal tender gold coin is enforceable. All paper money is legal tender for all debts and must be taken if offered for payment.
The legal tender status of US Mint Gold, Silver, and Platinum coins just provides the excuse to mint them, which is (ironically) a side business not directly serving the public. It also provides an absolute minimum value for the coins, which does not seem to be much of a problem. Anyone can mint a coin if they wish. It is just a formed piece of metal.