Rev. Rul. 76-214

Advice has been requested whether, under the circumstances described below, the exchange of coins held for investment qualifies for nonrecognition of gain under the provisions of section 1031(a) of the Internal Revenue Code of 1954.

In 1972 an individual taxpayer purchased 5 lots (1 lot equals 20 coins) of Mexican 50-peso gold coins as an investment. The taxpayer was not a dealer in foreign or domestic currency and was not engaged in trade or business in foreign countries.

During 1974, after substantial appreciation in value of the coins, the taxpayer exchanged the 5 lots of Mexican pesos for 61/2 lots (1 lot equals 20 coins) of Austrian 100-corona gold coins. At the time of the exchange, the total fair market value of the Mexican pesos was equal to the total fair market value of the Austrian coronas.

Both the Mexican pesos and the Austrian coronas represent official government restrikes and are bullion-type coins rather than numismatic-type coins. The current value of such coins is determined on the basis of their gold content and they are no longer currency in their respective countries.

Section 1031(a) of the Code provides, in part, that no gain or loss shall be recognized if property held for productive use in trade or business or for investment (not including evidences of indebtedness) is exchanged solely for property of a like kind to be held either for productive use in trade or business or for investment.

Section 1031(b) of the Code provides, in part, that if an exchange would be within the provisions of section 1031(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.

Section 1.1031(a)-1(b) of the Income Tax Regulations provides, in part, that as used in section 1031(a), 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.

In Rev. Rul. 74-218, 1974-1 C.B. 202, currency, in its usual and ordinary acceptation, is defined as gold, silver, or paper used as a circulating medium of exchange and does not embrace notes, bonds, evidences of debt, or other personal property or real estate.

The Mexican 50-peso gold coin and the Austrian 100-corona gold coin are no longer circulating mediums of exchange in their respective countries. Thus, neither of the gold coins is currency, or money as such term is used in section 1031 of the Code, since money in its usual and ordinary acceptation is synonymous with currency.

The differences between gold coins minted by one country and gold coins minted by another country, where such coins are not used as a circulating medium of exchange, are primarily of size, shape, and amount of gold content. The nature or character of the gold coins, however, is the same, and thus they qualify as "like kind" property as such term is used in section 1.1031(a)-1(b) of the regulations.

Accordingly, in the instant case, the exchange of the Mexican 50-peso gold coins for the Austrian 100-corona gold coins qualifies for nonrecognition of gain under the provisions of section 1031(a) of the Code.