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:: Placer Mining Industry - Chapter 2 - Mining Income
Gold
refiners
are
generally
the
primary
market
for
miners.
Raw gold
is
usually
delivered
to the
refiner
where it
is
purchased
from the
miner,
processed,
and
refined.
At the
point of
sale,
funds
received
are
considered
income
to the
miner.
Examination
of a
refiner's
cost-of-goods
sold is
a source
of
information
to
identify
the
refiner's
suppliers.
IRC
section
6045
establishes
information
reporting
requirements
for
brokers
to file
information
returns
showing
the
gross
proceeds
from
sales of
property.
This
information
is
reported
on Form
1099-B.
IRC
section
6045
establishes
information
reporting
requirements
for
brokers
relating
to gross
proceeds
including
the
reporting
on sales
of
property
that can
be
delivered
to
satisfy
a
contract
approved
for
trading
by the
Commodity
Futures
Trading
Commission
(CFTC).
This
applies
to both
Gold
Coins
and Bulk
Bullion.
CFTC
contracts
for gold
coins
call for
a
minimum
delivery
of 25
coins in
the form
of South
African
Krugerrands,
Canadian
Maple
Leafs,
Mexican
one-ounce
coins,
or any
other
type of
gold
coin.
Rev.
Proc.
92-103,
1992-2
C.B.
583, has
effectively
limited
the
IRS's
ability
to
verify
income
to a
miner by
examining
the
refiner's
records.
This
Revenue
Procedure
has
retroactively
raised
the
limits
required
to have
a
reporting
document
issued
to the
limits
set by
the
Commodities
Futures
Trading
Commission
rules
and
regulations
concerning
futures
contracts.
Due to
this
increase,
a
individual
selling
bulk
gold to
a
refiner
will
generally
not meet
the
limit
requirements
and thus
a Form
1099
would
not be
issued
to
reflect
the
income
received.
Due to
this
revision
of the
reporting
requirements,
the
refiners
will be
required
to issue
fewer
Forms
1099
unless
the
weight
or
number
requirements
are met.
There
are two
types of
contracts
for bulk
gold as
outlined
by the
Chicago
Board of
Trade
(CBOT):
Kilo
Gold and
100
Ounce
Gold.
CBOT
Rules
and
Regulations
section
A1536.01
covering
Kilo
Gold
contracts
states
the
contract
grade
for
delivery
on
futures
contracts
made
under
the
Regulations
* *
*
shall
be 1
(one)
bar
of
refined
gold
cast
in a
gross
weight
of
one
kilogram
minimum
(for
the
purpose
of
this
contract,
a
kilogram
is a
weight
equal
to
32.150
troy
ounces),
assaying
not
less
than
995
fineness
and
bearing
brands
and
markings
officially
approved
by
the
Exchange.
Settlement
shall
be
on
the
basis
of
the
fine
troy
ounces
of
gold
delivered.
(09/01/94)
CBOT
Rules
and
Regulations
section
B1536.01
covering
100
Ounce
Gold
contracts
states
that
each
futures
contract
made
under
the
regulations-
* *
*
shall
be
for
100
fine
troy
ounces
of
gold,
although
variation
in
the
quantity
of
the
delivery
unit
not
in
excess
of
five
percent
of
100
fine
troy
ounces
shall
be
permitted.
Delivery
shall
be
by
no
more
than
three
cast
bars
of
refined
gold,
no
less
than
995
fine,
and
bearing
brands
and
markings
officially
approved
by
the
Exchange;
and
no
bar
which
contains
less
than
31
fine
troy
ounces
of
gold
may
be
delivered
in
fulfillment
of a
contract.
Settlement
shall
be
the
basis
of
the
fine
ounces
of
gold
delivered.
Refined
gold
of
fineness
above
999.9
shall
be
considered
to
be
999.9
pure
for
the
purpose
of
calculating
the
fine
gold
content.
(09/01/94)
The
Chicago
Board of
Trade
rules
and
regulations
are
based on
the
rules
and
regulations
of the
Commodities
Futures
Trading
Commission.
When
examining
individual
returns
without
the aid
of
refiner-obtained
information,
an
indirect
method
will
likely
be used
to
determine
income
or if it
is
properly
reported.
Initially,
a bank
deposit
analysis
should
be
conducted
with
examination
of any
large or
unusual
items.
If the
taxpayer
is a
wage
earner
and has
other
sources
of
regular
income,
look for
deposits
which
are out
of the
norm.
The
cleanup
of the
placer
usually
takes
place at
the end
of the
mining
season,
generally
fall or
early
winter,
and
particular
attention
should
be given
to this
time
period
for an
indication
of
mining
activity.
It is
not
uncommon
for
miners
to deal
strictly
in cash.
If there
are
indications
that the
taxpayer
is
hoarding
gold and
selling
it only
as
needed,
it
becomes
difficult
to
determine
income
through
the
analysis
of bank
records.
If this
appears
to be
the
case,
the
Cash-T
or Net
Worth
indirect
methods
should
be
pursued.
The
excess
of
income
over
expenses
or
assets
over
resources
should
be
thoroughly
examined.
If
expenditures
prove to
be in
excess
of the
taxpayer's
resources,
the
income
issue
should
be
raised.
CTR's
should
always
be
checked
as it is
not
uncommon
for the
miner to
deal in
cash as
much as
possible.
Determine
if any
bartering
activity
or the
trading
of
services
are
present
in the
operation.
Another
area
indicating
unreported
income
is the
acquisition
of
depreciable
assets.
If there
are
purchases
of
equipment
or other
items
pertaining
to the
activity,
determine
and
verify
what
resources
were
used to
obtain
the
asset.
Third-party
contacts
with the
sellers
may be
necessary
to
determine
the
amount
paid and
when
assets
were
acquired.
If it is
determined
that the
individual
purchased
the
asset
with a
loan,
verify
the
lender,
what
relationship
they had
with the
purchaser,
and what
type of
collateral
was used
to
obtain
financing.
If gold
was used
as
collateral,
verify
the
value
placed
upon it
by the
bank or
other
lender.
If the
gold is
used as
collateral
for a
loan, it
becomes
income
to the
taxpayer
and
should
be
reported.
A
summons
of bank
records
may be
required
to
obtain
this
information.
Income
information
may be
obtained
in
examination
of the
Affidavits
of
Annual
Labor.
The
affidavit
will
list the
names
and
addresses
of those
individuals
who
performed
labor on
the
claim.
It is
often
the case
that an
owner
will pay
for
labor in
gold.
Verification
of the
amount
of
payment
for
labor
performed
may also
indicate
income
to the
miner.
Discuss
the
issue of
cash
hoards
with the
taxpayer
at the
initial
interview.
This
information
can be
useful
if an
income
question
arises
later in
the
examination.
Question
the
taxpayer
about
any
accumulations
of gold
or other
precious
metals.
If the
taxpayer
is in
the
production
stage,
with
income
but no
cost-of-goods
sold,
the
issue of
inventory
should
be
raised.
Determine
how much
gold was
on hand
at the
beginning
of the
year,
how much
was
produced
and
sold,
and the
amount
left at
the end
of the
year.
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