Items of personal property that are treated as a “collectible” under the Code are subject to certain tax-related ownership restrictions. Additionally, a 28 percent tax rate applies to any gain resulting from the disposition of collectibles, rather than the 20 percent rate that applies to most other capital gain income. Collectibles include art, rugs, antiques, metals, gems, stamps, coins and alcoholic beverages. Ownership restrictions applied by the Code prohibit taxpayers from holding collectibles in an Individual Retirement Account (IRA) or in an individually directed account in a qualified retirement plan. If an account does acquire a collectible, the cost of the collectible purchase is treated as having been distributed to the participant with respect to the account.
The Code provides an exemption from collectibles ownership restrictions for certain types of bullion. In order to qualify for the exemption, the bullion must meet certain fineness criteria and must be in the physical possession of a trustee that meets IRA trustee qualifications imposed by the Code. These trustee qualifications essentially require the trustee holding exempt bullion to be a bank. In a December 2013 private letter ruling (PLR 201446030), the IRS ruled that a gold trust with exchange-traded shares qualified to be held in an IRA. The trust was set up as a grantor trust for income tax purposes and allowed each shareholder to exchange his shares for gold bullion of equivalent value. The trustee of the gold trust was a bank, as required by the IRA exception. The IRS ruled that the acquisition of shares of this trust by an IRA trustee would qualify for an exemption from ownership restrictions and would not be treated as a distribution. The IRS clarified, however, that a distribution would be found if the IRA trustee were to exchange any shares to take possession of actual bullion.
It is important to bear in mind that the above exception for the ownership of gold trust shares by an IRA account does not apply to protect a taxable investor from paying the 28 percent collectibles tax rate if it owns shares of this type of trust and sells them at a gain. The exception is limited such that only IRAs may hold these trust shares.