Finders, Keepers?

3/5/2014

Modern-day salvagers can spend years to find centuries-old treasures. Mel Fisher spent 16 years searching for the Spanish galleon Nuestra Señora de Atocha, which sank in a hurricane off Key West in 1622. But sometimes finding buried treasure is far easier. Just ask the still-unidentified California couple, known only as "John" and "Mary," who took their dog for a walk and spotted the edge of an old can on the side of a trail they had walked almost every day for years.  

That can was so heavy, they thought it held lead paint. But as they carried it back to the house, struggling with the weight, it burst open to reveal the glint of gold. That rusted-out can turned out to be just the first of eight containing 1,427 mostly mint-condition gold coins, mostly from the nearby San Francisco Mint, made from 1847 to 1894. Their face value comes to $27,980, which isn't bad. But their market value may top $10 million. In fact, one coin alone — an 1866 Liberty $20 piece without the usual "In God We Trust" inscription — may be worth a cool million all by itself!  

At one point, it looked like John and Mary might have to give up their find. Back in 1900, a Mint employee named Walter Dimmick stole $30,000 worth of gold. Dimmick did his time for the crime, but the gold was never recovered. If it had been Dimmick's haul that our lucky couple found, they would have had to return it, even after all this time. Fortunately, the Mint says they don't think that's the case, and they won't be investigating. Mint spokesman Adam Stump told the San Francisco Chronicle, "we’ve done quite a bit of research, and we’ve got a crack team of lawyers, and trust me, if this was U.S. government property we’d be going after it.”  

The tax code says "gross income means all income from whatever source derived," and that includes "treasure trove" proceeds like the coins. The IRS clarifies that "if you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession." And that, in turn, means John and Mary will have to report the value of the coins on their taxes. They don't even get to use the lower capital gains rates. So let's see . . . 39.6% for Uncle Sam, plus 13.3% for California, leaves . . . well, barely half of that $10 million! The worst part is, they owe the tax now even if they keep the coins instead of selling them.  

What if John and Mary donated the coins to charity? Would that let them off the hook? Nope! The problem is, you can only deduct charitable gifts up to 50% of your income. That means our lucky couple could deduct just half the value of their fortune, and still pay tax on the rest — even if they give it all away. (The limit is even lower for gifts to private foundations — just 30%.)