Man buys $25000 car with $1000 in quarters

[68Camaro]

If the same sale was made for $1000 in bills, what would be different? In the eyes of most, the buyer would have gotten a deal and the seller would have left money on the table. The buyer wouldn't have taxable income of $24,000 - he would have gotten a deal. This is called commerce and free trade.

If the IRS skimmed off the top of every transaction based on percieved profit, there is a different name for that. We may be close to that point, but I don't think we're there yet.

[barrytrot]

I agree with you 68Camaro, however, there is precedence for the IRS charging "fair market". And since this article went semi-viral they probably noticed. When they notice they generally win if there is wiggle room for them to do so.

[Sheikh_yer_Bu'Tay]

as for the original article, what the guy is doing is basically trading $1000 FV of silver coins to the dealer for the car. the "clever" part is that he doesn't sell the coins, he has the dealer sell the coins.

but what is clear is that he is realizing $24,000 differential in value by trading the coins for the car. While this may not be a sale under a narrow definition of that term, it is the realization of of $24,000 in taxable income according to how the IRS interprets Section 61 of the Internal Revenue Code. So in my view its really not all that "clever."

i buy pms so i can sleep at night; cheating the IRS frustrates my goal of being able to sleep at night.

I think the IRS position is wrong and even unconstitutional based on how the founders defined a "dollar," but i'm not willing to fight the IRS over it.

I know I am a little slow, so help me out. Given the extreme price fluctuation of 90% silver coin in the past 12 years, it's true "value" is very subjective. If the IRS now sees 90% as a commodity, not money, then wasn't the exchange of 90% silver for the car a zero sum gain? Value for value was exchanged. How is that taxable?

I don't know the IRS rules for bartering. If 90% is a commodity and the car is a commodity, too. This is a barter exchange, is it not?

you get a $25,000 car for $1000 in coin; IRS would say you have taxable income of $24,000. the only thing that is debatable is the the value of the car, but on the facts above its difficult to argue that it is more than a few hundred bucks different than $25,000.

We are so freaking screwed.

[barrytrot]

Regarding bartering: I am not certain but I seem to recall being told that bartering where you REALIZE A PROFIT means you also have to pay taxes on that profit.

Similar to winning a car on "Price is Right" and having to pay taxes on it.

[AGgressive Metal]

I think the tax would most likely be paid upon liquidation of the 90% for FRNs, which would suck for that guy since his cost basis for determining the tax would be $1,000 instead of $25,000!

In other words, I don't think these two are really getting away with that much, unless the recipient of the coins intends to sit on them indefinitely.

[xippi]

Hard to tell from the article just a few facts missing, but I was thinking He gave the actual quarters to the dealer as payment, the dealer then went to the LCS and turned them in, so the tax liability would be on the car seller(Dealer), The buyer has a bill of sale for only $1000. But a 25k car now.

Back a few years (cough)I was getting alot of old cars from relatives and Junkers from everywhere . I would have a bill of sale for 1.00 but then the Massachusetts RMV would want to charge me tax on the BlueBookValue of the car. I have had to fill out more then 1 gift form. :clap Not sure if if still works that way. I haven't bought anything for quite awhile. It would also depend on what State you in.


xippi

[Sheikh_yer_Bu'Tay]

Okay, if we have to pay a tax when we use our coins...... which tax is it? Income tax? Capitol gains tax???

[barrytrot]

capitol gains most likely.

[doug]

To the IRS you bought the car for $1000. Now if you sell next year for $20000 then you will have to pay capital gain tax on $19000.

[hobo finds]

So the guy gave the coins to the car dealer as payment. Then the car dealer sold the coins to the coin store for $25K. The coin store had to make some money on this as well?

[barrytrot]

To the IRS you bought the car for $1000. Now if you sell next year for $20000 then you will have to pay capital gain tax on $19000.

I bet that even if he doesn't sell the car he may have to pay taxes on the "gain" from the quarters.

[Sheikh_yer_Bu'Tay]

capitol gains most likely.

Thanks, Barry. I am going to run all this by my CPA just to CMA.

[xippi]

[quote="xippi"]Hard to tell from the article just a few facts missing, but I was thinking He gave the actual quarters to the dealer as payment, the dealer then went to the LCS and turned them in, so the tax liability would be on the car seller(Dealer), The buyer has a bill of sale for only $1000. But a 25k car now.

Back a few years (cough)I was getting alot of old cars from relatives and Junkers from everywhere . I would have a bill of sale for 1.00 but then the Massachusetts RMV would want to charge me tax on the BlueBookValue of the car. I have had to fill out more then 1 gift form. :clap Not sure if if still works that way. I haven't bought anything for quite awhile. It would also depend on what State you in.


My thinking was He is trying to dodge the sales tax. again lack of clear facts in article. Im just amazed he found a car dealer to take silver, if he really did.

Here in Massachusetts its 6.25% x 25k would be about $1562.00

Xippi

I would also not recommend messing with the TSA .

[mflugher]

I wouldn't trust just any CPA to have a properly informed opinion on this matter. At best it is undecided, and will probably be somewhere between these 2 extremes, the decision will probably be made by a settlement ...

1. Best case:
Buyer: $1500 was paid for car, should he ever sell he must pay capital gains on the car with a basis of $1500 plus any fees he had to pay getting clear title to the car.
Dealer: $1500 was paid for his car with a cost of lets assume $19k he gets to write off the cost of the car on his business taxes, so he has "income" of $1500-cost of car net loss on business of $17500, also when he sells the coins he incurs capital gains of $25000-$1000 basis, or capital gains of $24k (at a possibly lower rate, also he doesn't pay social security/medicare tax on this cap gains income, a savings of 13.2% to 15.2%) .


2. worst case: at worst its a barter transaction and both parties should treat the full value of items traded as income from barter transaction... Generally there is no cost of good sold involved in a barter transaction, or at least the deduction is questionable.

Buyer: Pays income tax on line 21 "other income" of $24,500 at their prevailing income tax rate (not capital gains rate), there is a good chance this much income might bump them up a tax bracket... Additionally buyer potentially loses any basis he had in coins (ie if he bought them at 10x face a direct sale for $24,500 would result in paying capital gains on $14,500, at the lower capital gains rate as opposed to 24,500 at his prevailing income tax rate, since this buyer is not in the business of cars, he would not normally have to pay ss/medicare tax on these "proceeds".



Where this actuallly ends up is probably somewhere in between...

I'm a registered tax preparer working on my enrolled agent certification.


Please do your research and prove me wrong on the following statement. (I'm quite interested in this subject and have looked many times with no luck)
go to IRS.gov read the notes. There is just no "official" legal opinion, rules or irs guides on the tax consequences of such a transaction. There is no case law on this specific kind of transaction where the coins have both a face and a bullion value and the transaction is made using items at face value...


Keep in mind your CPA is not a tax expert, CPA training involves about 80% accounting and only about 10% tax preparation classes. Tax preparation is only a small part of your average CPA's firm, more attention is usually put into bookkeeping, audits, etc. I'm not saying a CPA isn't a better judge of this than you, but a professional who actually spends most of their time preparing taxes would be a better choice in general.