How do I report loss from precious metals stored with BullionDirect who went bankrupt

[jameschamlee]

Bought (15) rolls of US mint silver coins 5/7/2012 and stored them with BullionDirect who filed for bankruptcy 7/20/2015 resulting in total loss.  How do I report loss in corrected 2015 filing?

[SweetieJean]

Have you filed a claim with the Bankruptcy Court?

[SweetieJean]

<a rel="nofollow" target="_blank" href="http://about.ag/BullionDirectTax.htm">http://about.ag/BullionDirectTax.htm</a>

[jameschamlee]

Thanks

[Opus 17 · Accepted solution]

First, you need to determine the date of the loss.  That is when the loss become final and no money is retrievable.  For a legitimate firm in bankruptcy, that might not be until the bankruptcy closes, which could take several years even though there are few assets to distribute.  Since this seems like outright theft, the date the theft was discovered might be good enough.  The date when loss is established determines which year tax return you claim it on.

Second, decide if you want to treat it as an investment loss or a theft loss.  A theft loss can be deducted against ordinary income, but it has a fairly high deductible (10% of your gross income + $100).  So if your loss was $7,000 and your income is $60,000, then your deductible loss will only be $900.

If you treat it as an investment loss, you can only deduct it against investment gains plus $3000.  The unused amount is carried forward.  So with a $7000 loss, and if you have no offsetting gains, you could deduct $3000 the first year, $3000 the second year, and $1000 the third year.  You will get more deduction in the long run treating it as an investment loss but it may take some time.

For a theft loss, look for the casualty loss deduction on the deductions and credits page.

For an investment loss, go to the stocks and other investments section of the Income page.  Enter the loss as the "sale" of an investment, where you give the original purchase date and price, and the sales date is the date you determined the loss and the sales price is zero.

If you claim a theft loss by amending a 2015 return, that's the end of the story.  If you claim an investment loss by amending your 2015 return, you may have a carry forward loss to 2016, so you will want to do the amended return first so you know what to carry forward.

If you claim a total loss, and then later get a recovery from the bankruptcy or a criminal restitution account, that repaid money is taxable income (a recovery of a previous deduction.)

Here are the general amending instructions.

Amend https://ttlc.intuit.com/replies/3288565

[TaxGuyBill]

I don't see how it could be an investment loss if the coins were bought and 'stored' there.  The coins still have value and belong to the buyer, but if they are not returned to the buyer, it is theft.

[Opus 17]

The stated business model is that the company bought coins and stored them.  If true, the coins still exist and the taxpayer has not lost anything, he just needs to retrieve the coins.  But news stories suggest that the company never actually used investor money to buy and hold actual metal.  In which case this could be criminal theft.

I don't have time to research thoroughly, that's the taxpayer's job.  This story suggests that as of June 2016, a bankruptcy proceeding was still active and creditors were still in line to get something back.  <a rel="nofollow" target="_blank" href="http://www.mystatesman.com/news/crime--law/with-millions-precious-metals-missing-austin-mother-steps...>

If true, that would mean that a loss hasn't actually occurred yet, and the loss would be deducted on a 2017 tax return or later (whenever the bankruptcy closes) and should be treated as an investment loss not a theft loss.  But this is really for the taxpayer to investigate and determine since the taxpayer should be a creditor in the bankruptcy and should be getting updates from the trustee.