Precious metals dealers must report coin and bullion sales by their customers to the IRS to prevent instances of tax evasion.
Therefore, it’s crucial that sellers understand the tax implications associated with selling gold and silver coins. In this blog post, we’ll answer the question “do I need to report gold to IRS”
What is a reportable transaction?
Individuals and entities engaging in “reportable transactions” must notify the IRS on Form 8886 about these activities, often known as tax shelters or tax avoidance schemes, when participating. Reportable transactions could include those designed to avoid taxes (listed transactions) or produce losses exceeding $10 million in any single year or $20 million cumulatively (loss transactions).
Reportable transactions such as listed or reportable transactions act as tax shelters and participants who fail to disclose their participation should face a penalty equivalent to 75% of any decrease in tax that could have resulted if their participation had been properly disclosed on their return.
Wisconsin taxpayers must file federal Form 8886 along with their state’s income tax return in order to disclose participation in reportable transactions by the due date (including extensions) of their Wisconsin income tax return for the taxable year in which these activities occurred.
Who is required to report a reportable transaction?
Taxpayers who engage in reportable transactions must disclose them on Form 8886, Reportable Transaction Disclosure Statement. Material advisers involved must file Form 8918, Material Advisor Disclosure Statement. Failure to file or filing one that contains incorrect or incomplete information could result in penalties under Code Section 6707A.
Though some strategies to shelter income or gains may be frowned upon by the IRS, seeking legal ways to minimize or avoid taxes is perfectly legal. Some transactions are considered so high-risk that they must be reported.
Reportable transactions fall into five categories; listed transactions, confidential transactions, transactions with contractual protection, loss transactions and transactions of interest. If in doubt whether any transaction falls into any of these categories, an IRS ruling request can help identify whether it falls within these parameters; however, your obligation to disclose it remains intact during this process.
How do I report a reportable transaction?
Taxpayers must disclose their participation in “listed transactions,” or other reportable transactions considered suspicious by the IRS, through filing Form 8886, Reportable Transaction Disclosure Statement. Material advisers of such transactions must also file Form 8918, Material Advisor Disclosure Statement; failing to do so could incur significant penalties from the IRS.
Taxpayers may make a request to the IRS for a ruling regarding whether their transaction falls under reporting/disclosure obligations; however, their obligation will not be temporarily suspended while this request is in process (Regs. Sec 1.6011-4). This type of disclosure is often known as “protective disclosure.”
If you engaged in any reportable transactions – either listed or unlisted transactions – and need to file federal Form 8886 with your Illinois return, we can provide assistance. Depending on the facts and circumstances surrounding your situation, you may qualify for one of our voluntary disclosure programs or reasonable cause disclosure initiatives.
What is the penalty for failing to report a reportable transaction?
Individuals and businesses engaging in “reportable transactions” must disclose them on Form 8886, Reportable Transaction Disclosure Statement. This requirement extends to “listed transactions”, identified by IRS notice, regulation or published guidance as being possible tax avoidance schemes. Furthermore, reporting obligations also apply when taxpayers engage in confidential transactions that provide contractual protection such as refund advisor fees.
Prior to 2005, penalties for failing to disclose listed or other reportable transactions were calculated based on a percentage of any decrease in taxes shown on your return as a result of participating in them; minimum and maximum amounts applied depending on when and how they occurred. Since 2005 however, penalties for failing to report listed transactions now vary based on either an increase in income or reduction in loss that would have resulted if they hadn’t participated.