As St. Patrick’s Day approaches, many may be dreaming of finding a pot of gold at the end of a rainbow. While finding treasure may seem like a stroke of luck, it’s important to know there are rules surrounding the discovery of valuable items. In particular, the IRS has guidelines for what you need to do should you come across a treasure trove, with or without a small, mythical character.
First, it’s important to understand how the IRS defines a ‘treasure trove’ before addressing how it’s taxed. According to the agency, a treasure trove is a group of coins, currency or other valuable items that have been hidden and whose owner is unknown.
The key factor to remember is that the treasure must have been intentionally hidden, rather than simply lost or misplaced. However, if you should stumble across an intentionally hidden treasure, the law clearly states that you can keep it unless the original owner returns and proves ownership.
If you discover treasure, the IRS requires you to report it as income on your tax return for the year in which you find it. This means you’ll need to determine the fair market value (FMV) of the treasure at the time it was discovered, and include that amount as income on the return. You’ll also need to pay taxes on that income, just as you would with any other type of income.
It’s worth noting that the rules for found treasure can be complex, and there may be additional taxes or legal requirements depending on the specific circumstances of the discovery. For example, if you find treasure while you’re working for someone else, such as while excavating on a construction site, the treasure could potentially be considered income for the employer rather than the finder. In this case, the employer would be responsible for reporting the income and paying any taxes owed.
Let’s say you don’t stumble upon a pot of gold – what about other prizes or unexpected windfalls? These items are treated the same way and should be reported on your return.
If you’re lucky enough to find a pot of gold this St. Patrick’s Day, or any other day of the year, it’s important to remember that there are rules and regulations surrounding the discovery of valuable items like a pot of gold. It’s a good idea to consult with a tax professional (and probably a legal expert) to ensure you’re following all the necessary guidelines. By doing so, you can avoid potential penalties and ensure you’re complying with all applicable state and federal laws.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.