IRS Revenue Ruling 82-166 (Rev. Rul. 82-166)
Internal Revenue Service (I.R.S.)
Revenue Ruling (Rev. Rul.)
Published: October 4, 1982
SALES OR EXCHANGES; LIKE KIND; GOLD BULLION FOR SILVER BULLION
Section 1031 — Exchange of Property for Productive Use or Investment, 26 CFR 1.1031(a)-1: Property held for productive use in trade or business or for investment.
Sales or exchanges; like kind; gold bullion for silver bullion. The exchange of gold bullion held for investment for silver bullion held for investment does not qualify for nonrecognition of gain as an exchange of like kind property under section 1031(a) of the Code.
Does an exchange of gold bullion held for investment for silver bullion held for investment qualify for nonrecognition of gain under section 1031(a) of the Internal Revenue Code?
An individual taxpayer, who is not a dealer in gold or silver bullion, purchased gold bullion in the cash market and held it as an investment. In 1980, after the gold bullion had appreciated in value, the taxpayer exchanged the gold bullion for silver bullion of equal total fair market value. A gain was realized by the taxpayer as a result of the exchange. The taxpayer holds the silver bullion as an investment.
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 to 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.
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 represent totally different types of underlying investment and thus are not property of like kind. The bullion-type gold coins, unlike the numismatic-type gold coins, represent an investment in gold on world markets rather than in the coins themselves.
In this case, the values of the silver bullion and the gold bullion are determined solely on the basis of their metal content. Although the metals have some similar qualities and uses, silver and gold are instrinsically different metals and primarily are used in different ways. Silver is essentially an industrial commodity. Gold is primarily utilized as an investment in itself. An investment in one of the metals is fundamentally different from an investment in the other metal. Therefore, the silver bullion and the gold bullion are not property of like kind.
The taxpayer’s exchange of gold bullion for silver bullion does not qualify for nonrecognition of gain under section 1031(a) of the Code.