Hacking the IRS with gold coins
lvrj.com
lvrj.com
The US Government has placed a face value on the coins, a 1-ounce gold coin is marked 50 US Dollars. The intrinsic value of that coin today is right around $1000.
IF they argue that intrinsic value should be the determining factor, then what is the intrinsic value of a paper $20 bill (really about 5 cents of paper and ink)?
IF the IRS states that face value of the $20 bill is established by the US Government, then the face value of the $50 gold coin must also be taken at its face value - after all, the face value of the coin was established by the same government that established the paper bill's value.
I hope I have explained this right... the IRS cannot argue intrinsic value vs. face value without falling into a ditch. I think this is what the defense is counting on.
This is the way it is. Complaining about it doesn't change anything. Market value may be nebulous, but it's the least nebulous meaningful definition of "value" there is for commerce.
(This is why I can't even be a "goldbug". The idea that gold has intrinsic value is patently absurd, because there is no such thing as "intrinsic value". And once you are reduced to arguing that "Well, historically it's been a good investment" it is simply one commodity amoungst many and the argument is over, because now gold isn't special.)
I know, it was part of a larger point. You did seem to imply the existence of some sort of "real market value", though, which would somehow transcend transient fluctuations, but those transient fluctuations are all that exist. Even money doesn't have a real market value; a dollar is only worth what people will give you for it.
My point is that the nebulousness can be fixed by anything I said; my point is that the nebulousness is irreducible, and all attempts to make it less nebulous, no matter how necessary they may be for things like tax law, will inevitably be a leaky abstraction to the underlying chaos. So, complaining that a particular abstraction is leaky isn't very useful, they all will be.
http://chestofbooks.com/finance/banking/Banking-And-Currency...
As an example, pennies used to be made of solid copper. When they introduced the zinc filled coins, the solid ones all but disappeared. You can still find some if you look carefully. The reason is because the value of the copper in a full copper penny was actually worth more than one penny, so people collected them, melted them down, and sold the copper.
Of course this is illegal, but the laws of nature are stronger than laws of man.
If in fact someone immediately sold the coins and reported the nominal payment plus the short-term 'investment gain', it might push the matter below the level of IRS concern. My understanding is that when the net tax effect is about the same from alternate accountings, the IRS is unlikely to quibble about the particulars (but IANAL or tax accountant).
In theory, you are allowed to gift up to the $13K tax free each year. I wonder if he could claim that up to $13K minus the nominal value of the coins was a gift.
You can do a similar thing as an independent contractor just by forming an S-Corp and claiming your income as profit sharing instead of salary. And of course the outcome is similar: you enjoy a nominal benefit for awhile, and then you get audited and taken to court.
I don't think the IRS is shaking in their boots over this.
And my point was: while any combination of stunts leading to less taxes paid is of interest to the IRS, if you instead engage in bizarro accounting but the end result is you wind up paying about the same amount of taxes, just via different line-item -- no "net tax effect" -- they may as a practical matter ignore you. They care about the money, not the principle.
You can always pay someone legal tender to absolve a debt. That is the whole point of "legal tender". By law you have to accept it. You don't have to accept goats, or cheques, or money orders, or chickens, but you have to accept cash. A lender (read: contractor who is owed money for services) may not actually want to be paid in gold, but you owe him $50, he only has to value that gold as $50, not as $5k gold coin as $50.
The next step is easy: Since it is only $50 in currency, the former lender hops on a plane (with nothing substantial to declare) and sells it to a gold merchant in a country that has either extremely favorable tax treaties with Canada or has a very opaque banking system. Then the lender stuffs the money into a numbered bank account (they also get a debit card from this bank account) and they are done. True, they can't buy a house or a car without getting audited. What they can do, however, is buy a nice skiing trip, boat, piece of land in Turkey, etc...
However, the US mint will also prevent this from growing beyond a certain point. It can reduce the supply of such coins any time it wants to. Also, there's nothing to prevent the US government from creating a special "transaction tax" that only applies to the use of such coins.
Gold is worth what the person who buys it from you says it is worth.
Paper is worth what the person who buys it from you says it is worth.
As "money", both are valueless in and of themselves, and merely stand in for things of actual value (goods and services).
These are the fundamentals. Forget them at your peril.
While past performance isn't always an indication of future behavior, some trends are worth paying attention to.
If you want to scoff at something, let's start with diamonds which can be _manufactured_ to a higher quality, at increasingly lower costs. I mean, we are talking about _carbon_ there!
The amount of "stuff" -- things of value which we wish to obtain through economic transactions -- is not stable and has not been for quite some time; it has, rather, been expanding at a rapid pace (consider, for example, the number of profitable industries today producing durable goods which did not exist even a half-century ago).
This represents a problem: if the total amount of currency available for use in transactions does not maintain rough parity with the total amount of goods and services available to be exchanged in those transactions, then the imbalance will lead to wild price fluctuations.
Since this situation is isomorphic to inflation (the only difference is which side of the currency/goods equation harbors the imbalance), the magnitude of the fluctuations will be the same as in an equivalent inflationary situation.
Thus, your point would be a strong one if only you were arguing for gold as an investment (since, in an imbalance of the type described above, the market value of gold would increase). As an argument for gold as a currency, it holds no water and in fact tends to undermine that position. In the present age, gold simply cannot be the foundation of a stable currency.
--SNIP--
As "money", both are valueless in and of themselves, and merely stand in for things of actual value (goods and services).
--SNIP--
But, in hindsight, I realize that your statement, wasn't suggesting that gold had no value, but that its value was derived from those things that it stood for - which is, to some degree, orthogonal to the fact that it historically has reliably, and consistently, stood for things of value.
I'm not convinced this is nearly as bad a thing as some growth-uber-alles economists seem to think it is; it would encourage savings and cautious investment while preventing bubble formation. It would slow growth, but endless growth isn't sustainable anyway. (And increasing the money supply too fast, which there's always a lot of temptation to do, fuels highly unsustainable faux-growth.)
Also, although the amount of gold on and in the planet is fixed, the amount usable as a currency increases over time as it's extracted. At least in the short and medium term (probably at least the next few centuries) you would be able to have mild to moderate economic growth without deflation as the gold supply increased.
The best argument I've heard against gold-based currencies is that is mis-allocates resources: it creates a huge incentive to go around digging up gold, which is an activity serving no real useful purpose. When someone spends time and energy mining gold, they're not doing anything else with it; it's basically a dead-weight loss. Still, compared with currencies that can be created arbitrarily it might be an acceptable tradeoff.
The purpose of currency in an economy is (increasingly) seeming to include imposing a tax on using money as a store of value. See Mankiw's recent remarks on negative interest rates, which are all consistent with the mainstream monetarist theories that underly our use of fiat currency, etc.
A trend that I am noticing is the idea of credit as a "right" just as people consider healthcare a right and perhaps home ownership. We have already seen a bit of politicization of the Fed. I sincerely hope that this is all nonsense, but the danger is that the most powerful interests would actually stand to gain from such a regime. At present, banks (who are the biggest contributors to both parties) would gain as would various other industries who (by virtue of various other government imposed incentives) are popular ways that people attempt to purchase stored value (houses, 401Ks, etc.).
Inflation is taken to be a bad thing since, if the price (in whatever currency we're using) of goods and services suddenly increases by, say, 1000% in a short time, people who purchase those goods and services are screwed, which also means people who sell them are eventually screwed (since they have no market in which to sell their goods and services).
But deflation is at least equally bad: if I _sell_ goods or services, and the price (again in whatever currency we're using) drops 1000% in a short time, then I and everyone else who sells goods and services is screwed, which means people who would buy goods and services are screwed (since everybody who was selling them just went out of business).
This is why gold can be a good investment in the modern age, but not a good currency; any time a new development results in rapid economic expansion, it would be accompanied by wild fluctuations in the (gold) currency, tending toward crippling deflation.
It's also why I'm harping on the fact that money _as money_ must by definition have no intrinsic value. Its job is not to have value. Its job is to stand in for things of value so that we don't have to use insanely complex barter schemes.
And since gold is, for reasons surpassing understanding, held to have value far beyond anything attributable to the actual substance (which is "valuable" in itself only as, for example, part of electrical components), gold is an absolutely terrible basis for a currency in this modern world.
The US dollar that we use today has a history going back to exactly 1971 and the end of Bretton Woods.
I think people get a little too worked up over the evils of "fiat currencies," but they do have a point that from a historical perspective they are basically an experiment. It's entirely possible that people may look back from a few centuries hence and look at floating national currencies (which are essentially backed only by the backing government's power to tax a particular economy) and think "what a really terrible idea." The very power that a fiat currency gives a government over its money supply might turn out to be more temptation than even the most honest government can withstand in the long run. We don't know, because there just hasn't been enough time to tell.
There's two orders of magnitude difference between the amount of time gold has been in use and the amount of time the current un-pegged dollar has been around. While it's true they're both given value by what other people will trade for them, it's a bit disingenuous to say they're the same.
"Hacking the War on Drugs: I put weed in my sock drawer, which worked until my roommate called the cops on me as a prank."
For example, if he earns $60, and his expense is paying someone $50, either:
a) He pays them $50, they pay taxes on that $50, and he pays taxes on the $10, or
b) He does his coin trick, they pay taxes on, say, $5, and he pays taxes on $55 (because he gives the coins a low value).
If all he's doing is buying something at one price, writing down its value, and giving it away, then anyone can do this. Try it with shares of a privately-held company, or golf club memberships, or anything that doesn't freely trade.
It's like breaking into a store in order to steal something, and then leaving behind enough money to pay for it. Pointlessly flouting the law.
If you sell something for which you paid $50 for $950, you absolutely do pay taxes for the gain.
That's what's missing from the story. Either we're reading it wrong, or what he committed was a conventional tax fraud with a gold-bug spin.
He will probably be convicted for hiding assets, though.