Counting Your Change...

[buelligan]

There was a story going around a year or so ago about a gentleman that purchased a car for lets say $20,000 but instead of handing over $20,000 cash and paying the taxes on that he paid in collectible U.S. currency. So he handed over $20,000 "collector value" of quarters but the "face" value was only say $5,000. Since the IRS cant accept that the money is worth anything more than it's "face" value he only had to pay taxes on $5,000. I thought that was a pretty ingenious solution but I'm confident that the IRS has now changed the rules to prevent it from happening in the future.

 

[HudsonHawk]

There was a story going around a year or so ago about a gentleman that purchased a car for lets say $20,000 but instead of handing over $20,000 cash and paying the taxes on that he paid in collectible U.S. currency. So he handed over $20,000 "collector value" of quarters but the "face" value was only say $5,000. Since the IRS cant accept that the money is worth anything more than it's "face" value he only had to pay taxes on $5,000. I thought that was a pretty ingenious solution but I'm confident that the IRS has now changed the rules to prevent it from happening in the future.

This doesn't make sense. Who says the IRS cannot recognize the fair market value of collectible currency? What tax is someone trying to avoid?

 

[sheeplady]

This doesn't make sense. Who says the IRS cannot recognize the fair market value of collectible currency? What tax is someone trying to avoid?

Perhaps it has more to do with the claimed payment? For instance, if I state that you paid me $100 for an item, and the actual cash was $100, then the sale price is $100. It doesn't matter if you pay with a bill that is worth $1,000; the only "money" that traded hands is a $100. The rest of the value ($900 of the extra worth) is essentially a barter deal.

It also wouldn't be the IRS, it would be the state I think.

 

[HudsonHawk]

Perhaps it has more to do with the claimed payment? For instance, if I state that you paid me $100 for an item, and the actual cash was $100, then the sale price is $100. It doesn't matter if you pay with a bill that is worth $1,000; the only "money" that traded hands is a $100. The rest of the value ($900 of the extra worth) is essentially a barter deal.

It also wouldn't be the IRS, it would be the state I think.

But at some point, the "collector value" of the currency has to be realized, or the seller is selling a $1,000 item for $100. Why would he sell items at 10% of their market value? Secondly, the seller has to reconcile the sale of the asset valued at $1,000. He either has to show it as a $900 loss or has to show something of equivalent value. He can't accept $1,000 for it and only record/report $100. That's highly illegal.

 

[LizzieMaine]

Presumably this transaction, if it actually happened, didn't involve rare 19th century coins -- it was probably what they call "junk silver," common, worn pre-1964 coins of no "collector" value at all. In such case their only real value is the bullion value of the silver itself -- so wouldn't that be the value assessed by the IRS, even though the coins are still technically legal tender for their face value?

The U. S. is unusual in that it doesn't demonetize obsolete currency. In the UK you couldn't pull a scam like this because their obsolete currency is no longer legal tender.

 

[HudsonHawk]

Presumably this transaction, if it actually happened, didn't involve rare 19th century coins -- it was probably what they call "junk silver," common, worn pre-1964 coins of no "collector" value at all. In such case their only real value is the bullion value of the silver itself -- so wouldn't that be the value assessed by the IRS, even though the coins are still technically legal tender for their face value?

Exactly. At some point, the value of the currency, beyond its face value, has to be recognized by someone, otherwise, the face value is all there is. If it's not recognized by the seller, he just sold a $20,000 car for $5,000. If it's not recognized by the buyer, he just paid $20,000 for a $5,000 car. This transaction makes no sense to either party unless both items in the exchange are of equal market value.

 

[buelligan]

Well on the buyers side he would only have to pay sales tax on the $5000 on the sellers side he is probably gambling on the value of the silver going up even more but that is a chance that he is taking.

 

[sheeplady]

But at some point, the "collector value" of the currency has to be realized, or the seller is selling a $1,000 item for $100. Why would he sell items at 10% of their market value? Secondly, the seller has to reconcile the sale of the asset valued at $1,000. He either has to show it as a $900 loss or has to show something of equivalent value. He can't accept $1,000 for it and only record/report $100. That's highly illegal.

If it was a retailer/ dealer, I agree. The only way the story works is for a private individual to do it. Otherwise it is essentially cooking your books.

 

[LizzieMaine]

According to today's spot silver price for junk-silver coins, a $1,000 face value bag is selling for $14,446. So if this guy bought a $20,000 car for $5000 face value in junk silver the dealer got $72,230. And the buyer is the king of all chumps.

 

[HudsonHawk]

Well on the buyers side he would only have to pay sales tax on the $5000 on the sellers side he is probably gambling on the value of the silver going up even more but that is a chance that he is taking.

Only if what he gave in exchange for the car had market value of $5,000. The idea that the government can't tax you on collectible value of currency or coins is false.

If these are individuals, taxes and the IRS would not enter into it. If the seller was running a business, he still has to account for the $20,000 asset on his balance sheet. If he claims he sold it for $5,000, then 1) he has to reconcile the value discrepancy somewhere, and 2) the basis of the currency or silver is $5,000 and when he sells it later for $20,000, he's taxed additionally on the $15,000 difference. Any value of the currency or silver beyond face value will be manifested when it's sold later on, so it's still taxed, only the seller would be paying it. I can't understand why a seller would make that deal.

 

[HudsonHawk]

If it was a retailer/ dealer, I agree. The only way the story works is for a private individual to do it. Otherwise it is essentially cooking your books.

And if it's just two individuals, you wouldn't pay sales tax on it anyway. I just can't see how this story is anything other than apocryphal.

Not that people don't cook their business's books, but it's certainly not a legitimate loophole or anything.

 

[buelligan]

According to today's spot silver price for junk-silver coins, a $1,000 face value bag is selling for $14,446. So if this guy bought a $20,000 car for $5000 face value in junk silver the dealer got $72,230. And the buyer is the king of all chumps.

Sorry I should have made that more clear, I was just using hypothetical numbers because the exact numbers have slipped my mind.

 

[buelligan]

Only if what he gave in exchange for the car had market value of $5,000. The idea that the government can't tax you on collectible value of currency or coins is false.

If these are individuals, taxes and the IRS would not enter into it. If the seller was running a business, he still has to account for the $20,000 asset on his balance sheet. If he claims he sold it for $5,000, then 1) he has to reconcile the value discrepancy somewhere, and 2) the basis of the currency or silver is $5,000 and when he sells it later for $20,000, he's taxed additionally on the $15,000 difference. Any value of the currency or silver beyond face value will be manifested when it's sold later on, so it's still taxed, only the seller would be paying it. I can't understand why a seller would make that deal.

How would it make any difference to the seller? If he sold the car for $20,000 and received $20,000 in cash when he "spends" the $20,000 he will be taxed the same whether he had $20,000 cash or $20,000 worth of something. Until the time that he tries to cash in it's just like any money and just a bunch of numbers in a book. The buyer is the only one getting any benefit since at least here in Ohio you pay sales tax on your vehicle when you go to get your title put in your name so he would be paying taxes on $5,000 and not $20,000. I've never had the title office question whether the vehicle I'm getting a title for is worth what the seller put on the title as a price.

 

[buelligan]

And if it's just two individuals, you wouldn't pay sales tax on it anyway.

You do here in Ohio, the price you paid for the vehicle is on the title and when you go to get the title put in your name you will pay tax on whatever that amount is.

 

[HudsonHawk]

How would it make any difference to the seller? If he sold the car for $20,000 and received $20,000 in cash when he "spends" the $20,000 he will be taxed the same whether he had $20,000 cash or $20,000 worth of something.

Because he didn't get $20,000 in cash, he got $5,000 worth of "something". That's what you've claimed is the fair market value of the items exchanged. That something is now a capital asset for the seller, acquired at a tax basis of $5,000. When he then sells that something for $20,000, he's realized a $15,000 gain. He has to pay tax on that $15,000,which for collectible items is 28%. So right off the bat, he's sold the car for $15,800, even before any other finagling.

Until the time that he tries to cash in it's just like any money and just a bunch of numbers in a book.

You're right, it's just numbers until he turns that something into cash. That's my point about realizing the collectible value. If he never does, he's sold the car for $5,000 and got shafted. But if he turns that something into $20,000, he's made $15,000 in capital gain income and is taxed accordingly.

The buyer is the only one getting any benefit

Exactly. Why would a seller make that kind of deal?

 

[HudsonHawk]

You do here in Ohio, the price you paid for the vehicle is on the title and when you go to get the title put in your name you will pay tax on whatever that amount is.

So why wouldn't you simply put $1?

 

[buelligan]

So why wouldn't you simply put $1?

You can, or you can even put gift on the title but ethics gets in the way for us honest folks. ;-)

 

[buelligan]

Because he didn't get $20,000 in cash, he got $5,000 worth of "something". That's what you've claimed is the fair market value of the items exchanged. That something is now a capital asset for the seller, acquired at a tax basis of $5,000. When he then sells that something for $20,000, he's realized a $15,000 gain. He has to pay tax on that $15,000,which for collectible items is 28%. So right off the bat, he's sold the car for $15,800, even before any other finagling.

Well and this is just a thought but maybe the buyer and seller figured that in to the whole exchange, I'll try to dig up that article to get the facts of what they did. Heck it's been so long since I read the article I may have all the facts messed up.

 

[HudsonHawk]

You can, or you can even put gift on the title but ethics gets in the way for us honest folks. ;-)

Yeah, I was thinking of the guy who put $5,000 in order to avoid paying tax. Why wouldn't he just say it was a gift.

 

[HudsonHawk]

Well and this is just a thought but maybe the buyer and seller figured that in to the whole exchange, I'll try to dig up that article to get the facts of what they did. Heck it's been so long since I read the article I may have all the facts messed up.

There may be things like that going on, and I have no doubts that people do things to avoid paying taxes. But there's what people do and what's within the rules. I'm talking specifically about the latter. It's just that this particular deal doesn't make much sense to me.