Earlier this year, a marine exploration company recovered a great deal of gold — worth more than $1 million — from a ship that went down in 1857. When you find that kind of treasure, you better believe that the IRS wants its cut. Indeed, any treasure you find, or any other unexpected windfall or prize you end up with, is considered income, and the IRS expects you to report it on your tax return and then pay taxes on it.
Found Money, Valuables, and More
One of the cases that uphold the right of the IRS to ask you to pay taxes on such found income is a case in which a man found $5,000 in a used piano he bought for $15. The IRS tried to collect, and the man went to court. However, the courts found that this money could be considered income, and could be taxed.
It is the case for all the treasure that companies find at the bottom of the ocean or elsewhere. Indeed, some companies make it a point to look for shipwrecks at the bottom of the sea. In the past, it was practically impossible to recover the treasures on the ocean floor. However, thanks to improved technology and the ability of submersibles to descend to ever greater depths, more is being found and brought up. And that could mean a windfall for the IRS, as well as for those who go looking for treasure.
When you find valuables, whether it’s artwork, gold, or cash, you are expected to report the value as income. Yes, this even applies to the person on twitter who is hiding cash for people to find. If police are unable to identify the gifter, then techincally its taxable.Even prizes you win can be considered income for the purpose of taxation. You report the value, and then pay taxes on it. When you have cash in hand, or if you can sell the valuable item in order to get cash, it isn’t such a big deal. However, things change if you find something valuable and decide to keep it. Now you have a valuable item, but you have to come up with the cash to pay the taxes on it.
In some cases, it’s tempting to keep your find quiet, and hope the IRS doesn’t find out. However, you need to realize that hiding this income from the government is illegal. Plus, if you make a major discovery, it’s going to show up on the news and the IRS may come looking for you. Even if you do manage to keep it out of the news, you have to be aware of whistleblowers. An IRS whistleblower gets a cut of the recovered tax, so it might be in the interest of a friend or family member to tell the IRS about your find, so that they get a portion of the tax you owe.
What If It’s Recovered Property?
The good news is that you don’t have to pay taxes on your find if you can prove that you actually own it, and it is recovered after being lost or stolen. If you think that some valuable jewelry was lost in a natural disaster, and then you find it years later, you don’t have to pay taxes on it, since it’s already yours. However, if you’ve already claimed a deduction for the loss or theft of the item, you will have to pay taxes on the value of the recovered item, since you got a tax break for it. And don’t forget the tax on the appreciation if the item has increased in value since you lost it.
The IRS expects you to pay taxes on all your income — no matter where it comes from — so keep that in mind while you look for treasure.