Trade Dollars with other startups. Book it as revenue
revswap.ai
revswap.ai
Small businesses are cash strapped. So you find someone who needs your services and you need their services. Instead of exchanging cash, you exchange invoices and do the work. You build them, say, a $5000 website, they perform, say, $5000 of landscaping.
At big boy levels this is often structured as “strategic partnership”.
The part that makes it not fraud is that both parties do actually do the work.
Loans without any economic performance of services generate circular meaningless cash flows yeah, but that's not the case when services are actually performed.
Loans are promises to pay. Business deals are promises to perform services or deliver goods. The difference is easily lost in the details even for accountants and economists.
The one op is referencing is more like the dollar is used to pay off the waitstaff, who pay their rent to the landlord, who pay their over due taxes, so that the government can issue a refund to the cafe owner. The dollar ends up back in the hands of the cafe owner, who puts it back down on the table with all the debts paid off.
https://www.econlib.org/archives/2012/01/an_answer_to_a.html
> True, at the beginning each resident has a $100 liability. But each also has an offsetting financial asset of $100. At the end, they all have neither. So the $100 bill acts as a clearing mechanism
You get $5000 of revenue but spent $5000 on services.
You also have to pay taxes on that $5000 like other revenue.
So many small businesses will try to just exchange the services more directly in some way, or give steep discounts. (Tip: This doesn’t mean it’s entirely correct for tax/legal/accounting purposes, so don’t do big deals like this without consulting professionals. I’m just saying this is what’s done by some people)
> The part that makes it not fraud is that both parties do actually do the work.
The cheap criticisms of these deals always miss this part: something of value is traded for the dollars by both parties. Companies can’t simply circulate dollars between themselves.
Businesses do not pay taxes on revenue, they pay taxes on profit.
Other taxes may be applicable though (such as VAT or sales taxes).
The problem comes when the $5k you “traded” also didn’t cover the actual expense to provide the $5k you “earned” - now you have an actual loss even if cash didn’t flow.
At least for US federal taxes, losses do not need to be tied to revenue. As long as they occur in the same tax year, you can deduct. You can also carryover losses to future years, or pass them through to personal income deductions; but the rules there get more complicated.
What taxes are owed on revenue? Tou pay taxes on profit only.
It's far more nuanced than that.
If you do the work but undervalue it, it's likely tax fraud.
If you do the work but overvalue it, it's likely investor fraud.
Even if you fairly value the work it still might be investor fraud. The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.
> If you do the work but undervalue it, it's likely tax fraud.
A company can value it's services as it chooses. If the work is performed for $1 or $5000 the government doesn't get a say in that.
> you do the work but overvalue it, it's likely investor fraud.
Quite possibly. Assuming this was done with the intention of misrepresenting your revenue and gaining investment.
>The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.
Vendors are chosen all the time because of their willingness to accept specific payment terms and a whole bunch of non-merit pipelines via family, via golf course deals etc.
What if you're getting paid in landscaping?
As an individual interestingly it does matter because services received for free are considered taxable income (but businesses are not taxed on their income).
Business are taxed on their net income but many jurisdictions tax businesses on their gross revenue as well (look up GRT and GET).
Investor fraud is usually brought as a civil case and takes a balance of evidence approach.
Since enforcement is stochastic and rare these practices are pretty common. The freedom to do ‘whatever’ is really dependent on the discretion of the government and investors. Most companies can and do fly under the radar but have to be careful not to piss off the wrong people.
I did have to look it up, I didn’t know that the US was different in this way. I did have the California tax authority make a mistake and take money directly out of my account and there didn’t appear to be a way to fight it. It wasn’t enough to be worth hiring a lawyer over so I let it go but it didn’t give me much faith in the governance of California, very Kafkaesque.
CA FTB does not take money out of your account unless you have explicitly authorized it to do so and it definitely does not do so automatically. It only pulls specifically authorized amounts when specifically authorized to do so unless you have a garnishment order issued by a court. (I deal with the CA FTB on a daily basis.)
You're also wrong about most other countries as well, with the exception of France.
It was a vehicle registration issue for a car I had sold 10 years earlier, it got a parking ticket in CA and they used that as evidence I still had the car and owed registration fees. I had evidence the car was sold and had changed title many times since then before the parking ticket but they wouldn’t accept that. I didn’t go to court over this and the money disappeared from my account, I did get a phone call telling me what happened. I had not received any notice prior. As mentioned I’m sure I could have gotten a lawyer for this but legal fees would have exceeded the amount lost, perhaps in the future when I have a lawyer on retainer.
It isn’t that black and white. If you are being paid in cash, you can charge whatever you want, that is true. But if you are exchanging goods or services for other goods or services, the government is going to care how you value that transaction.
That's simply not true. You may get a certain amount of leeway, but it has to be reasonable.
For example giving huge discounts below cost only to family members, which is more or less like paying them money without paying taxes for it.
When two companies undervalue the services that they offer to each other, they pay lower taxes. This is the illegal part.
Businesses are taxed on their net income, not get gross.
Exactly. But it doesn't have to be used in this way.
Where have you seen this?
When I was doing consulting I could charge whatever rate I wanted. Usually around $200 but went up to $500 and down to $25 when doing a favor. Same type of work.
At the enterprise level this is even more common. Nothing has a fixed price and the same service can be sold at wildly different prices to different customers based on endless variables.
Sure, if you're charging cash. If you charge $25 and that's all you get, it's worth $25 by definition; being bad at business is allowed.
But if you're charging $25 and you're getting $25 and a favor, that work you're doing is actually worth more than $25 and the IRS expects you to declare the value of that favor as income. If you normally charge $500 but sometimes you charge $25 the IRS might look deeper to see what else you're getting in compensation.
You're highly likely to get away without declaring that favor, and there are certainly legal ways to avoid it too -- gifts, training/education, et cetera, but at it's base level it's income.
Whether it you think it should or not depends on your personal preferences, but in practice the government does get a say in anything that it deems to be an undue way to reduce your taxes.
Barter would be much more common if it was a legal way of avoiding taxes.
Investor fraud is much more likely if neither company actually needs each other's widgets and it's just to pump revenue.
Which means, "If the work is performed for $1 or $5000 the government doesn't get a say in that." --- it absolutely does, in the way of requiring the person getting a "$1 service" to calculate their tax as if they got $5000.
OTOH, most work is not "unique, innovative and visionary" and has a relatively transparent fair market value.
Who protects the consumer when they have been gutted of any power?
It amazes me investors or the sec will put up with it
Probably not, it's just giving a discount. Nothing wrong with that. Many companies sell goods or services below cost. To gain other benefits like market share, or new customers. Why not do it to get something else essential from another company?
> If you do the work but overvalue it, it's likely investor fraud
It probably depends on the situation. If it's mainly used to inflate sales figures and scam investors, then probably yes. If it's just a "good deal" then probably not.
Discounting and undervaluing have differences, one of them is transparency. As you say, many companies offer discounts and don’t hide that. People who commit tax fraud usually aren’t transparent about their “discounts”.
It's basically saying they give you as much discount as you need to be able to afford the service. And those discounts are very secret by design.
If I want to sell my SaaS to small primary schools for 90% off, I should be able to do that.
Probably.
Let’s discuss.
[0] https://en.wikipedia.org/wiki/Barter
Re investors: please list at least one credible source supporting this assertion.
Any lie, misleading omission or misleading half-truth is investor fraud.
If a firm can’t afford services cash, that’s part of the merit of the choice.
This is not compelling.
> fraud is that both parties
> do actually do the work.
Do they though?
https://www.ato.gov.au/businesses-and-organisations/gst-exci...
I am sure people avoid the tax element this way, but it's not a sustainable way to go.
Let's say I do a website for $5,000 (putting aside that this a dead industry, and my career for the past 20 years) and the landscaper comes to do the work at my house.
If he cuts a powerline, falls down a hole or chops off his hand, we have a big insurance problem. No paperwork, no contract.
I have had friends who did their side of the contra deal and never got the other part of the bargain fulfilled.
Things like 'I'll paint your house if you can help fix up this old car of mine.'
I have turned down these deals in the past. Same as someone asking me to work for free for 'exposure'.
I am not having a go at the comment above as I think the point is valid - small business doing this is fraud, big business do it and it's fine.
Just my advice to anyone thinking it might work for them. Send the invoice, do the work, get paid in money.
My company builds your company a website, and "charge" $1,000,000 for it.
Your company mows my company's lawn and "charge" $1,000,000 for it.
Both companies now have $1,000,000 in revenue from this transaction.
I just have personal experience where the person offering from one side often wants to avoid the tax. In Australia we have 10% GST/VAT. Pay someone and there is 30% payrol tax (even as a sole trader). Then 12% mandatory pension contribution.
So the $5000 website/landscaping turns into 3k cash in hand.
Enticing to avoid this if you can, but I am risk adverse - clients pay me off the back of this. It balances the risk appetite of a business owner who could cut corners, with me sayng not to. If they do, at least I made the risk clear.
But your point is valid and correct. There is nothing wrong with contra deals where it's booked properly.
Under ASC 606 you can't just allocate any old number you like. On top of this, no auditor would sign off on what you suggested. The IRS would be looking at you and get you on tax fraud, you'd likely be committing securities fraud, bank fraud, wire fraud and 26 other things I can't think of, assuming you are a business of any size at all.
Two adults, a legal subject, sufficiently specified, offer, acceptance, consideration, mutual assent… a contract.
Yeah, they’re getting useful things but they aren’t making money.
https://web.archive.org/web/20260515043739/https://www.revsw...
That gave me a chuckle. Too real.
If you search for "vat carousel" today, it seems this is still a thing.
If something can't be monitored with minimal effort, it only serves to enrich the legal/accountancy/hr/admin priest caste.
The amount of labour wasted on moving numbers around numbers is staggering.
edit: Between the government and businesses, VAT costs 5% in admin fees to raise. In a modern world where most transactions are digital, is this a great use of resources?
https://taxfoundation.org/blog/value-added-tax-vat-progressi...
My current belief is that there should really just be a wealth tax on assets (Federal) and a land value tax on land (States); nothing else.
https://taxfoundation.org/blog/value-added-tax-vat-progressi...
Being neutral relative to a sales tax is a confusing starting point. I consider a sales tax to be a truly bad tax, as it disproportionately effects the poor.
But why can't we just say "2% over a billion, 1% over a million; 50% if you choose to move your assets out of the country". It does not seem that unreasonable to insist that you keep your monies in the country that lead to your wealth?
Instead of taxing leavers, one should provide tax cuts for returners. Their investment locally means jobs will be created locally and taxes will subsequently be paid locally anyway. Win-win for everyone.
VAT is based on flows of cash so is trivial to calculate and to collect. Wealth taxes require valuation and are just too easy to minimize and are expensive to calculate, and difficult to extract. (E.g. I own shares in a family member’s small business via a loan I provided. What’s that shareholding worth for the purposes of a wealth tax?)
VAT acts also as a sales tax as well as a tax on “added value” - business profits - so replacing two separate tax regimes with a single trivial-to-calculate, difficult-to-avoid (requiring two parties to conspire together), easy-to-collect (cash-flow based) tax.
Without getting into the politics of taxation, it’s the best designed tax there outs.
> We take 2% of every swap. Then we swap our revenue with another platform.
This is why substance over form is a thing in revenue accounting. Unless you're an American AI company ofc.
Yeah that doesn’t sound Ponzi-adjacent at all
Those things have more money than the world, and can't change anything about their business without the house of cards of their investment image falling down.
This incredibly still fits all of these entities.
Read the whitepaper*
*there is no whitepaper
Let's just say if you really want to commit crimes, don't start with challenging the IRS. Just don't. There's so many horror stories about that.
But it's all for mocking the current market... so.
The result? The GDP goes up two million and we both have shit eating grins.
But wtf is up with Firefox? It doesn't like the site's SSL. Okay, they missed points 7, 18 and 24 to 31 in the current security theater checklist.
An error occurred during a connection to revswap.ai. Cannot communicate securely with peer: no common encryption algorithm(s).
Error code: SSL_ERROR_NO_CYPHER_OVERLAP
Whatever?
Hmm if i edit the link to http i get a cloudflare error page. Someone censoring?
And what does it say about the modern internet that the first two things i thought of are security theater and vendor censorship?
> Yet another hedge fund manager explained Icelandic banking to me this way: you have a dog, and I have a cat. We agree that each is worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners but Icelandic banks, with a billion dollars in new assets.
Two economists are walking through a cow pasture.
The first economist says to the other “I’ll pay you $100 to eat that pile of shit.” The second economist takes the $100 and eats the pile of shit.
They continue walking until they come across a second pile of shit. The second economist turns to the first and says “I’ll pay you $100 to eat that pile of shit.” The first economist takes the $100 and eats a pile of shit.
Walking a little more, the first economist looks at the second and says, "You know, I gave you $100 to eat shit, then you gave me back the same $100 to eat shit. I can't help but feel like we both just ate shit for nothing."
"That's not true", responded the second economist. "We increased the GDP by $200!"
Like you have a measure (GDP) and it can't accurate measure things unless a sale occurs. So even if the money is a wash there was an actual activity occurring in the economy and now it's recorded.
For example, if you've ever wondered why useless art trades at such eye-watering valuations, the answer is that the high valuations are fictions that governments will accept for tax purposes, from which you can derive a variety of exciting tax consequences: https://naturalist.gallery/blogs/journal/understanding-the-f... more-or-less because they agree among themselves what the art is valuated at for their own benefit.
Can it also generate SOC2 certifications in days?