Internal Revenue Service (I.R.S.)

Revenue Ruling

Section 1031 - Exchange of Property Held for Productive Use or Investment

Sales or exchanges; like kind; gold bullion for gold coins. The exchange of gold bullion for Canadian Maple Leaf gold coins qualifies for nonrecognition of gain or loss as a like kind exchange under section 1031(a) of the Code.

ISSUE

Does the exchange of gold bullion for Canadian Maple Leaf gold coins qualify for nonrecognition of gain or loss under section 1031 of the Internal Revenue Code?

FACTS

In individual taxpayer, who is not a dealer in gold bullion or coins, purchased gold bullion in the cash market and held it as an investment.  The taxpayer subsequently exchanged the gold bullion for Canadian Maple Leaf gold coins, which also were held for investment.  On the date of the exchange, the total fair market value of the gold bullion was equal to the total fair market value of the Canadian Maple Leaf gold coins.

The Canadian Maple Leaf gold coin is legal tender in Canada. However, the gold content of each coin greatly exceeds its face amount of $50.  The Canadian Maple Leaf gold coin has no numismatic value.

LAW AND ANALYSIS

Section 1031(a) of the Code provides that no gain or loss is recognized upon an exchange of property held for productive use in trade or business or for investment solely for property of a like kind to be held either for productive use in trade or business or for investment.

Section 1.1031(a)-1(b) of the Income Tax Regulations provides that as used in section 1031(a) of the Code, the words 'like kind' have reference to the nature or character of the property and not its grade or quality.  One kind or class of property may not, under that section, be exchanged for property of a different kind or class.

Section 1031(b) of the Code provides that if an exchange would be within the provisions of section 1031(a) if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without recognition of gain, but also of other property or money, then the gain, if any, to the recipient will be recognized, but in an amount not in excess of the sum of the money and the fair market value of the other property.

Section 1031(c) of the Code provides that if an exchange would be within the provisions of section 1031(a) if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without recognition of gain or loss, but also of other property or money, then no loss from the exchange will be recognized.

In Rev. Rul. 74-218, 1974-1 C.B. 202, currency, in its usual and ordinary acceptation, is defined as gold, silver, other metals, or paper used as a circulating medium of exchange.

Rev. Rul. 76-214, 1976-1 C.B. 218, holds that the exchange of Mexican 50-peso bullion-type gold coins for Austrian 100-corona bullion-type gold coins qualifies for nonrecognition of gain under the provisions of section 1031(a) of the Code.  The gold coins described in Rev. Rul. 76-214 were restrikes and were not circulating mediums of exchange in their respective countries and, therefore, were not currency, or money as that term is used in section 1031 of the Code.

In Rev. Rul. 76-249, 1976-2 C.B. 21, a taxpayer exchanged real property with a fair market value of $6,000 for United States silver coins with a face value of $2,000 and a fair market value of $6,000.  The revenue ruling holds that silver coins received for the real property are to be treated as property and not as money.  Therefore, the amount realized by the taxpayer from the exchange was the fair market value of the silver coins ($6,000) rather than the face amount of the coins ($2,000).

Rev. Rul. 79-143, 1979-1 C.B. 264, holds that the exchange of United States $20 gold coins (numismatic-type coins) for South African Krugerrand gold coins (bullion-type coins) does not qualify for nonrecognition of gain under section 1031(a) of the Code because the numismatic-type coins and the bullion-type coins are not property of like kind.

In the present case the taxpayer exchanged gold bullion for Canadian Maple Leaf gold coins, which are legal tender in Canada to the extent of their face value of $50 each.  However, because the value of the gold content in each Canadian Maple Leaf gold coin greatly exceeds its face value, it is not a circulating medium of exchange.  Therefore, the Canadian Maple Leaf gold coin is property rather than money for purposes of section 1031(a) of the Code. See Rev. Rul. 76-214 and compare Rev. Rul. 76-249.

Because the Canadian Maple Leaf gold coins are bought and sold for their gold content, they are bullion-type coins.  Therefore, the nature and character of the gold bullion and the Canadian Maple Leaf gold coins are the same, and they qualify as 'like kind' property as that term is used in section 1.1031(a)-1(b) of the regulations.

HOLDING

The taxpayer's exchange of gold bullion for Canadian Maple Leaf gold coins qualifies for nonrecognition of gain or loss under section 1031(a) of the Code.