For all practical purposes, there exists in the United States today five distinct monetary standards: paper (including base metal coin, collectively “fiat legal tender”), together with silver, gold and platinum (collectively “specie legal tender”). 31 United States Code (U.S.C) §§ 5103 and 5112, see also, Utah Code Annotated (U.C.A.) § 59-1-1501-1. The Secretary of the Treasury is “to maintain the equal purchasing power of each kind of United States currency.” 31 U.S.C. 5119(a). Significantly, this statutory mandate invokes the market test of “purchasing power”, not merely parity of nominal face value. To this end, Congress has provided the secretary with a variety of statutory tools. These include the directive to buy and sell precious metals from the country’s reserves (Id.) as well as the requirement that all proceeds from the sale of gold be used “for the sole purpose of reducing the national debt.” 31 U.S.C. § 5116(2) (Reagan’s Golden Rule).

Nevertheless, as a result of the secretary’s failure to make effective use of these statutory prerogatives, the purchasing power of the various U.S. currencies currently in circulation, particularly that of specie legal tender in contrast to that of the fiat paper currency, has increasingly diverged over the past several decades.

Notwithstanding the growing disparity in the purchasing power of the various kinds of dollars in circulation today, federal law continues to draw no legal distinction between specie and paper dollars. As the 5th Circuit recently observed, “a dollar is a dollar regardless of the physical embodiment of the currency.” Crummey v. Klien, 295 Fed.Appx. 625, 627 (5th Cir. 2008). Notably, the Crummey Court simply followed long-standing Supreme Court precedent:

A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar. The law has not made the note a standard of value any more than coin. … The law knows no difference between them. Thompson v. Butler, 95 U.S. 694 (1877)

Ever since the Coinage Act of 1965, by which President Johnson dispensed with the Constitutional silver dollar standard that had served the country’s economy for 173 years (with rare exceptions during wartime), tax courts have struggled with the tax implications of the ever widening specie/paper purchasing power gap. During the 20-year moratorium (1965 to 1985) on the mintage of U.S. specie legal tender, the courts developed the judicially-crafted rule of non-circulating and/or numismatic specie legal tender being treated as taxable “property other than money” pursuant to 26 U.S.C. § 1001(b). See, Rev. Rul. 68-634, 1968-2 CB 46; Rev.Rul. 78-360, 1978-2 C.B. 228; Cordner, 45 AFTR2d 80-1677 (DC Calif., 1980); California Federal Life Insurance Co. v. Commissioner of Internal Revenue, 680 F.2d 85 (9th Cir. 1982), affg. 76 T.C. 107 (1981); Joslin v. United States, 666 F.2d 1306 (10th Cir. 1981), affg. 1981 WL 186; Cordner v. United States, 671 F.2d 367 (9th Cir. 1982); Lary v. Commissioner ofInternal Revenue, 842 F.2d 296 (11th Cir. 1988). All of these cases involved tax years which occurred within the mintage moratorium. So arguably specie coin was not technically “circulating,” as legal tender at that time.

However, following the resumption of specie legal tender mintage pursuant to the Liberty Coin and Gold Bullion Coin Acts of 1985, some courts have continued to uncritically extend the rule developed during the moratorium into the new era of specie legal tender circulation. See, Smith v. Commissioner ofInternal Revenue, T.C. Memo. 1998-148 and United States v. Kahre, 2007 WL 1521064. Notably, none of the cases which have embraced the “non-circulating” rationale or in any way acknowledge the Supreme Court’s holding in Thompson v. Butler, which draws into question their validity.

In fact, item 13 of Internal Revenue Bulletin 2010-17 identifies the following as a "frivolous" tax position:

(13) In a transaction using gold and silver coins, the value of the coins is excluded from income or the amount realized in the transaction is the face value of the coins and not their fair market value for purposes of determining taxable income.

Under 26 USCA §6702, any person who submits a tax return or other specified submission based on positions that are the same as or similar to positions identified as "frivolous" may be subject of a $5,000 penalty, if the submission is not withdrawn within 30 days of receipt of an IRS notice that the position has been identified as "frivolous".

Interestingly, in response to a 2015 Freedom of Information Act inquiry, the IRS only identified two cases handed down during the mintage moratorium and an order relying on such case law as the basis for its categorization of this position as frivolous.

One important factor in determining the tax treatment of a particular transaction appears to be taxpayer intent. In Thorne and Wilson, Inc. v. Utah State Tax Commission, 681 P.2nd 1237 (1984), the Utah Supreme Court considered the applicability of sales tax to the purchase of precious metal coinage. Following the holding in Michigan National Bank v. Department of Treasury, 339 N.W.2d 515 (1983), the court in Thorne determined that:

[W]here Krugerrands are transferred as a medium of exchange ... the coins remain intangible personal property, not subject to tax. But where ... they are transferred as an investment commodity, they become tangible personal property within the meaning of the General Sales Tax Act." Thorne, supra at 1239.

The Thorne court expanded on the Michigan National Bank holding applying it to both "United States and foreign coins, when they are not used as currency or a medium of exchange". Ibid. at 1239. Significantly, Thorne was handed down during the specie legal tender mintage moratorium. Even then, the court found that whether specie is used as money or as investment property is determinative of its tax treatment.

More recently, an Ohio federal district court ruled that where coins are “not used as legal tender, but instead … traded and converted based on their intrinsic or tangible metallurgical value”, such lose their monetary status. U.S. ex rel. Holbrook v. Brink's Co., 2015 WL 196424 (S.D. Ohio Jan. 15, 2015). Thus, intent becomes paramount.

Accordingly, taxpayers who not only hold, but actually use gold and silver coin as a medium of exchange for the purchase of goods and services, have better grounds to assert the monetary, rather than the mere investment, character of such coins.