Taxing Baby Jesus

Posted 18 Dec 2011

Wise men visited the young Jesus, bringing gifts of gold, frankincense and myrrh.  What if He wanted to sell those gifts later on to buy a donkey, feed the poor, clothe the naked, or buy a house? 

 How would those first Christmas gifts, and subsequent transactions, be treated under US tax law? If you wouldn't mind getting some gold or silver (or frankincense and myrrh) for Christmas, or if you are giving them, you might want to be aware of the potential taxes involved.

This article is a follow up to some previous articles on the Liberty Dollar case and the discussion about trading gold or silver coins that followed. 

  Readers have asked me about the implications of the Kahre case, regarding trading legal tender gold and silver coins as opposed to privately minted gold or silver coins.

Jesus, Wise Men and Taxes

The facts set forth in the biblical account of the gifts of the Magi, along with a few facts and assumptions I throw in for good measure, provide a good hypothetical scenario for understanding the legal and tax consequences of trading goods, like gold, frankincense and myrrh, and legal tender gold or silver coins.

  For a more thorough understanding of the law regarding trading bullion, you might want to consult Pieces of Eight.

The legal and tax consequences of trading gold and silver are important to privacy. Privacy is freedom and gold and silver as money protect people from violations of fundamental human freedoms.

Transfer #1

...and when they had opened their treasures, they presented unto him gifts; gold, and frankincense, and myrrh.

Matthew 2:11

Here we have wise men giving very expensive gifts to Jesus.  Let's look at whether Jesus has any income taxes to pay from receiving these gifts and if there might be a gift tax owed by the wise men.

Income Tax Liability Of Jesus

There are no income taxes owed when you receive a gift. Fortunately, Jesus will not have to pay any income taxes on the gifts he received. However, since these wise men came from "the east" we will assume that they are foreigners. 

  If any of Jesus' gifts were worth more than $100,000, He will need to fill out Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Its a good thing the gift is well documented to defend himself in case the IRS thinks Jesus might have unreported income.

Gift Taxes

The GIVER of a gift must pay a tax if they give someone a gift worth more than $13,000.  There is an "exemption amount" that complicates this concept a bit, but for simplicity we will not address it here. 

 Any one of the gifts worth more than $13,000 would cause the wise man who gave it, if they were subject to US taxes, to owe gift tax at approximately the same rate as his income tax (excluding any exemption amount issues). Maybe that's why they didn't stop by to see Herod on the way out of the jurisdiction.


It will be important to know what Jesus' basis in the gifts are if he ever decides to sell them in the future.  The basis is generally the amount the GIVER paid for the item.  Lets assume that the wise men picked up their gifts at a store in Bethlehem right before they gave them to Jesus. Their basis (and subsequently Jesus' basis) is the market value of the goods at the time they were bought (let's say $285 for an ounce of each, the approximate spot price of gold 13 years ago, since I don't have the spot price of frankincense and myrrh handy).

Now let us imagine that Mary and Joseph were pretty good parents and saved these gifts to present to Jesus at His Bar Mitzvah which is, in our hypothetical, this year. The day after his Bar Mitzvah, Jesus contemplates buying all kinds of nice things with the gifts the wise men gave him almost 13 years before.

Transfer #2

The gifts from the wise men are spent.

Capital Gains Tax

To calculate the gain, we take the difference between the fair market value of the item when spent, less the basis (essentially the original price paid).  The price of gold has now risen to over $1,600.   Lets also say that the other gifts have had similar gains.

When you recognize a gain on the exchange of an asset (like gold, frankincense or myrrh) for something else (another good, cash, etc.), a capital gains tax will apply.  For most assets, the capital gains tax is 15% of the gain.  Frankincense and myrrh would be taxed at 15%.

Higher Capital Gains Tax On Gold - 28%

Gold is different.  Gold is specifically identified in the tax code, along with antiques, rugs, stamps, art and other collectibles, at a 28% capital gains tax rate. Jesus' gain on gold, if exchanged for goods worth $1600, would be $1314 per ounce. 

  Instead of paying 15% of this gain as a tax ($197 per ounce), He will have to pay capital gains tax at a rate of 28% ($367 per ounce).

This highlights a big reason why gold and silver are not regularly used as money, especially while they are appreciating in value.  Capital gains tax makes gold and silver more expensive to use as money than other things that are less suited for being money, like frankincense and myrrh.  He could get 13% more house if he trades frankincense or myrrh instead of gold.

Legal Tender Value Of Gold Coins

Some gold and silver coins are official US legal tender.  Gold Eagles have a face value of $50, even though the value in Federal Reserve Note Dollars is much more.  This has led some people to believe there might be some tax arbitrage.

One such individual was Robert Kahre, who paid his employees and independent contractors with legal tender gold and silver coins.  He recorded the value of the transactions at the legal tender value on the coins, rather than the Federal Reserve Note value.  In other transactions, such as purchasing a house, he declared the value of the coins at their Federal Reserve Note value.

There are numerous issues raised in the case, but if allowable, these types of transactions would have reduced reporting requirements, income taxes and a lot of other taxes for the participants. Kahre was ultimately convicted of tax evasion.

$1 ≠ $1

The state of the law is that a dollar does not equal a dollar.  Thus we have the result of the Kahre case.  It seems ridiculous to say that a dollar does not equal a dollar, but in order to avoid prosecution, it might be a good idea to record your transactions in legal tender gold and silver at the Federal Reserve Note Dollar value instead of the Gold Eagle Dollar value.

If Jesus traded a Gold Eagle for a fish-and-loaves dinner for 5,000, neither Jesus, nor the caterer should record the expense or income at $50.  They should record the transaction somewhere between the fair market value of the coin or the food. The same is true if you trade a house worth $160,000 in Federal Reserve Notes for 100 ounces of gold with a "legal" tender value of $5,000. I'm sure the property tax assessor will tax you on the Federal Reserve Note Dollar instead of the Gold Eagle Dollar.


Some people may not be satisfied with this rule and may attempt to challenge it.  There are certainly many facts that were not favorable to Mr. Kahre.  For example, he paid individuals with gold and silver at one window, and just a few feet away at another window, bought back those gold and silver coins at fair market value for currency or other notes.

  A different factual scenario may have legitimate legal arguments to support the position and could lead to a different outcome, although I think it is unlikely.


Jesus would not have been taxed for the gifts he received from the Magi unless he traded them later for gains, at which point the tax on his gains in gold would have been significant.  The Wise Men might have been taxed for giving a gift to Jesus.

  When dealing with legal tender gold and silver coins, it appears that in order to obey one law (the law as enforced in the Kahre case) one would have to disregard another law (the legal tender value of the coins) and report the Federal Reserve Note Dollar value instead. I can't think of very many other instances of ridiculous outcomes in the law: a dollar is not the same as a dollar. I still prefer the gold ones.