In last month’s visit we discussed the tax treatment of various gold investments.
Investments in bullion and coins are considered collectibles. These assets cannot be held in an IRA. If an IRA purchases a collectible, it will be treated as a distribution of the amount of the purchase. The amount must be included in gross income and also faces the 10% early distribution penalty if the owner is under age 59½.
The question is what is the treatment of exchange-traded funds that own bullion, such as gold and silver? These funds buy bullion and store it.
The IRS has issued a private letter ruling holding that the purchase of an exchange-traded fund that owns gold or silver bullion is not the purchase of a collectible. Instead, the IRA is purchasing shares of a fund. These shares are taxed the same as the purchase of corporate stock or mutual fund shares. The IRS allowed this treatment because the share owner does not have a claim on the shares of bullion and cannot force a distribution of the bullion.
The Private Letter Rulings are 200732026 and 200732027. The rulings were issued to the exchange-traded funds and are referenced in their prospectuses. Private Letter Rulings are solely between the taxpayers that requested them and the IRS. They cannot be used as authority by another taxpayer to support his or her positions. But they do reflect the IRS’s thinking on an issue and generally are followed by IRS auditors. Therefore, it should be safe to own shares of the bullion-owning exchange-traded funds in IRAs.
RW July 2009