What is a dollar?

[joel]

It turns out that the definition of the U.S. dollar and its value is somewhat a matter of controversy.

The U.S. Mint coins $1 coins made of 1 troy oz silver (Silver Eagles) and $50 coins made of 1 troy oz gold (Gold Eagles). The metal in these coins is worth significantly more than the face-value dollar amount (about $16 and $890, respectively at the time of the writing of this post). So it would seem idiotic to spend, say a gold eagle as legal tender.

However, it seems a man named Robert Kahre did just that. For years he payed his employees in silver and gold eagles and recorded their face (legal tender) value in the books. For example, he could pay an employee an annual salary of 45 gold eagles = $2,250USD legal tender. This cash value is less than the level at which the transactions must be reported to the government, so neither Kahre nor his employees reported the earnings (even though the metal in the coins would have a market value of about $40,000). In this way, they avoided paying taxes. Even if the income had been reported, it would have been less than the standard deduction and exemption, and so no income tax would need to be payed.

Think about it. If such a thing caught on--the employees could buy, say a car worth $20,000 with about $1,150 of legal tender, if the owner of the car were so willing. Would they have to pay sales tax only on the $1,150 payed?
Inflation would make this even better--the lower the value of the dollar (i.e., with respect to the precious metals), the greater discrepancy and the lower the value of the tax to be paid (whether income tax or sales tax or whatever).

Evidently, the federal government did not agree, and charged Kahre and his employees and his family members with over 100 charges. In Sept 2007, a jury failed to deliver a conviction on any of the charges.

So the question is, what exactly is the legal definition of a dollar?
How is a person to compute the amount of tax they owe if they don't know what a dollar is? Is a silver eagle a dollar or is a dollar bill (Federal Reserve Note) a dollar?

On a related note, If someone payed their employees in, say, goats, how would income tax be computed and how would income tax withholding work? If someone purchased a good with goats, how would the sales tax be computed?

This blog:
http://www.independentamerican.org/blog.php?blog=534
makes some interesting comments:"So if you file a 1040 form under penalties of perjury that says you had $xx,xxx.xx income when you did not have any “dollars” in income then you did not tell the truth. And now that you know that you do not know what a dollar is that could be perjury.

And what if you told a federal officer that you had 50 dollars in your pocket when you had a $50.00 gold coin in your pocket. Would it be a crime?"

So if you received all your income in goats (or bars of gold or whatever) then you did not receive any dollars in income, and to claim that you did on your tax return would be perjury? If you receive a $50 gold eagle, then would it be perjury to report it as $50 or $890 on your income tax return? How do you know which one?

Does anyone know (or know how to find out) the passages in the U.S. legal code that determine these things?

Here are a few articles on the Kahre case:
http://www.rense.com/general78/defeat.htm
http://www.lvrj.com/news/9893062.html
http://www.liberty-watch.com/volume03/issue08/coverstory.php

[Ryokan]

The problem is the US government does not issue silver dollars in large enough number to make this practicable, and in kind is taxable as a gift probably.

[PolarBeer]

Can't answer the question fully, but here's a start.

The silver eagle and gold eagle are legal tender. As such, I get the impression from the Bureau of Engraving and Printing's website that to alter them in any fashion would be illegal. As such, one could say that they're never worth more than their legal tender value - the material they're made of is legally unrecoverable. Obviously, the market value of the coins says otherwise...

In terms of payment in sheep or gold bars, they can be taxed, though I'm unclear on how the valuation is done. Also, mailing a sheep to the IRS for payment might not go over well. :lol:

Here's the Bureau website: http://www.moneyfactory.gov/document.cfm/18/104

And an article on Peter Max, who eventually plead guilty to bartering with his art: http://query.nytimes.com/gst/fullpage.html?res=9C07E2D61F39F935A35755C0A960958260

[joel]

And an article on Peter Max, who eventually plead guilty to bartering with his art: http://query.nytimes.com/gst/fullpage.html?res=9C07E2D61F39F935A35755C0A960958260
[/quote]
Wow, that raises even more questions.
1) If you build a house and sell it, then I think you'd have to pay income tax on the sale value minus your cost (if the difference is positive).
2) If you built the house and gave it away, then you'd have to pay gift tax, but who would determine the value of the house for that purpose? Wouldn't it be better to have the other person pay you $1 for the house, so that it's not a gift, and you can write off the sale as a loss?
3) Even harder is to determine the value of is a painting that you create and give away.
4) So, in a barter, trading a painting for a house, does each person have to compute the value of the item they gained minus the cost paid for the item given as income?
5) Couldn't the two parties get around this by first Alice selling the house to Bob for $1, and writing off the loss on Alice's taxes, and then Bob selling his painting to Alice for $1 (or whatever) and, assuming it's less than the cost of the paint supplies, Bob could write off that loss on his taxes? So instead of reporting income from the transactions, they would each report a loss.

And it doesn't seem like it would be figured any differently whether the $1 was a Federal Reserve Note or a silver eagle.

It seems like if everybody always did such things, then no one would ever pay any tax. So it is likely that such things are illegal. But I wonder in what way are they illegal, and how does one know?

[PolarBeer]

Wow, that raises even more questions.
1) If you build a house and sell it, then I think you'd have to pay income tax on the sale value minus your cost (if the difference is positive).
Yeah, that sounds about right.

2) If you built the house and gave it away, then you'd have to pay gift tax, but who would determine the value of the house for that purpose? Wouldn't it be better to have the other person pay you $1 for the house, so that it's not a gift, and you can write off the sale as a loss?

Yes, except that then that person would have to pay capital gains tax when they sold it on, I imagine. The same might be true if the gov't appraises houses in the US for property tax purposes. (I have no idea how property tax works there.)

3) Even harder is to determine the value of is a painting that you create and give away.
4) So, in a barter, trading a painting for a house, does each person have to compute the value of the item they gained minus the cost paid for the item given as income?

Well, I don't honestly know, but from the link I've attached at the bottom, I think so. That said, art obviously doesn't cost much to make, and I suspect it's value would in a large part be determined by what you traded for it.

5) Couldn't the two parties get around this by first Alice selling the house to Bob for $1, and writing off the loss on Alice's taxes, and then Bob selling his painting to Alice for $1 (or whatever) and, assuming it's less than the cost of the paint supplies, Bob could write off that loss on his taxes? So instead of reporting income from the transactions, they would each report a loss.

And it doesn't seem like it would be figured any differently whether the $1 was a Federal Reserve Note or a silver eagle.

It seems like if everybody always did such things, then no one would ever pay any tax. So it is likely that such things are illegal. But I wonder in what way are they illegal, and how does one know?

Again, bartering things at a loss would fall foul of capital gains tax if nothing else. I think the only reason why there was a debate with the silver eagles was really the government's own slipup - they sell something as legal tender for far more than the legal tender value. That's enough to make a jury pause in a case like the one cited.

Ah, here's that link:

http://www.u-exchange.com/bartering-legalities

pb

[micah4]

Wow, that raises even more questions.
1) If you build a house and sell it, then I think you'd have to pay income tax on the sale value minus your cost (if the difference is positive).
[/quote]

Is that not exactly what a homebuilder does? The income for their business is their gross sales minus their cost.


2) If you built the house and gave it away, then you'd have to pay gift tax, but who would determine the value of the house for that purpose? Wouldn't it be better to have the other person pay you $1 for the house, so that it's not a gift, and you can write off the sale as a loss?


I think you probably can do this- but if the person goes to sell the house, say, for $180,000 they would have to pay capital gains on $179,999 (excepting special tax provisions for your primary residence). Now if I can just find somebody to build me a house for $1, I'd be okay with that.


3) Even harder is to determine the value of is a painting that you create and give away.


Yep, and chances are the IRS won't ever bother with you unless they think you're cheating them out of a bunch of money, or you're unlucky enough to come up for a random audit, if such a thing exists. I'm sure if you're audited they would find *some* way to value your painting for you. If it was a significant amount, it's probably because you're a well known artist and have sold other similar works which would be used for a basis.


5) Couldn't the two parties get around this by first Alice selling the house to Bob for $1, and writing off the loss on Alice's taxes, and then Bob selling his painting to Alice for $1 (or whatever) and, assuming it's less than the cost of the paint supplies, Bob could write off that loss on his taxes? So instead of reporting income from the transactions, they would each report a loss.


I'm not sure why one couldn't technically do that, except that if the transactions occured in close proximity with any obvious relation, they'd undoubtedly argue that it was a bogus arrangement made specifically to evade taxes, which I'm sure is covered somewhere, and they'd take you for it somehow in tax court anyway. I cant cite the code, but does anybody think that really matters?


And it doesn't seem like it would be figured any differently whether the $1 was a Federal Reserve Note or a silver eagle.


It wouldn't seem like it, except that the federal reserve system and the IRS are mutually interested parties in bilking you through a sham system.

And in Kahre's case, he was only acquitted of the criminal charges because the system is so confusing that it's nearly impossible to prove intent, if one can reasonably demonstrate they thought they were calculating their taxes properly, which is easy enough to do here. BUT, Kahre did not dispute (or at least did not win such) that he underreported and owed back taxes; so the precedent was clearly established that the taxes should be calculated on the market value of the bullion, not on the legal tender value. Which is hilarious, and IMO the fed's bare naked backside is plainly showing here. If I sent the feds a gold eagle to *pay* my taxes, I guarantee you they wouldn't give me more than the $50 legal tender value for it. But if I use the basis they give me for the coin when paying my taxes as the basis for any other transaction, I'm breaking the law. Now here's one to wrap your brain on: Suppose I walk into a federal reserve bank, and hand them a $50 (legal tender) one ounce gold coin, and ask for change. They'll give me 2 $20 FRN's and a $10 FRN. Do you suppose that bank declares a- let's see, spot price is !cow! $910 right now, lets say $950 or so for coined metal.. Do you suppose the bank declares an $900 profit on their books from that transaction? Do you think the IRS would take the bank to tax court for not properly reporting their income? I think my head would probably explode. If I had any idea how I could audit a bank's income taxes, I'd be tempted to do it myself, it might be worth an 900 dollar loss just to find out.


It seems like if everybody always did such things, then no one would ever pay any tax. So it is likely that such things are illegal. But I wonder in what way are they illegal, and how does one know?

Call me a jaded cynic, but I don't think it really matters what the law is. What matters is that there is big money and big political power interested in protecting the system no matter what the law says. If we went by what the law said, "legal tender" FRN's would be illegal. Do you think these people care what the law is?

As if we needed more proof, the feds not a few months past have essentially claimed that bartering Silver bullion is illegal- and possibly copper, too. So you can barter your goats, your paintings, your houses and anything else you care to, but don't barter silver bullion, at least certainly not if it's circular. That's illegal, apparently. Is it really? No. Does it matter? It does to me, but not to the feds. What matters to the feds is that if gold and silver could compete freely as alternatives to FRN's, FRN's would lose. And the courts will make the law say whatever they need it to to make sure that doesn't happen.

[Jezz]

Australia, in the very early days of decimal currency (~1966), actually used to have a similar problem. The 50c coins were made from a silver alloy which, when melted down, was worth more than 50c on the market. Of course it was probably illegal to do so, but it would have been extremely difficult to police. So in order to avoid precisely the problems that the US government seems to have created for itself here, they were withdrawn from circulation.

I agree with micah4 - "the fed's bare naked backside is plainly showing here."

[joel]

Another thought is that someone could exchange $900 for $50, in a sense echanging one denomination for another, and consider it a loss--if it's a business expense (e.g., you are going to pay your employees the $50), then it seems you could write the $850 off as a loss (a fee paid for the exchange, like those automatic change machines at grocery stores charge when you pour in all your loose change and it gives you FRNs.) But I'm sure you would get prosecuted for that, whether or not there exists a law.

Call me a jaded cynic, but I don't think it really matters what the law is. What matters is that there is big money and big political power interested in protecting the system no matter what the law says. If we went by what the law said, "legal tender" FRN's would be illegal. Do you think these people care what the law is?
That's probably true, they could prosecute anyone, regardless of whether any law was broken. I guess the goal then is not to be law-abiding, but to try your best not to stand out from the crowd. :sad:
Ayn Rand points this out in Atlas Shrugged, saying that the looters make laws, but are not upset when people break them. On the contrary, they make the laws for the purpose of making everyone a law-breaker, so that they have the appearance of authority to use their guns against anyone.

:sigh: if only we had a constitutionally limited government.


As if we needed more proof, the feds not a few months past have essentially claimed that bartering Silver bullion is illegal- and possibly copper, too.Are you referring to this:
http://www.usmint.gov/consumer/index.cfm?action=hotitems#NORFED
"prosecutors with the Department of Justice have determined that the use of these gold and silver NORFED "Liberty Dollar" medallions as circulating money is a Federal crime."
I think technically they are correct--because "money" is defined in the USC as that which is declared to be "money" by a national government--but it is misleading if that is all they mean, and are not referring to "bartering" the silver round for a good or service.

I think one issue on which the state might get you is that I think most states tax a barter twice, because they consider it as two sales.

[PolarBeer]

Actually, this all reminds me of something of a tax dodge I heard some consultants I know making use of: Their days rates are collected by a third party organisation which does not pay them a salary, but instead "loans" them an equivalent amount in a currency currently undergoing hyperinflation. (Zimbabwe's currency, for example.) Obviously, they exchange it at the time of the loan for UK currency, but their debt is in a currency whose value is plummeting daily. Interesting the things people come up with to avoid taxes.

(I wasn't entirely convinced by this particular model, I have to admit - it sounded like they were never even clearing up these "debts" on the assumption that they were worthless past a certain point. What happens if the company running the scheme goes bankrupt and someone acquires some debts that aren't so worthless in ten years?)

pb

[Sparko]

the question is... if you have to declare the market value for the metal of the coin instead of its face value, then could you pay someone 30,000 dollars in regular dollar coins, and only report the value of the metal that makes up the coins which is probably $100 in scrap metal.

:hehe:

[micah4]

the question is... if you have to declare the market value for the metal of the coin instead of its face value, then could you pay someone 30,000 dollars in regular dollar coins, and only report the value of the metal that makes up the coins which is probably $100 in scrap metal.

:hehe:

Now that is subversive.

Though at this rate it probably isn't long until the base metal content will be worth more than the legal tender value. It's already true, I think, for the old pre-'81 pennies minted before the copper content was reduced.

[Sparko]

Now that is subversive.

Though at this rate it probably isn't long until the base metal content will be worth more than the legal tender value. It's already true, I think, for the old pre-'81 pennies minted before the copper content was reduced.
it would be hilarious if that guy went back and did like I said above and then when the IRS comes again he can say

"make up your mind!!! Do I declare the face value or the metal value?"

Either way the IRS would lose. I am sure they will say "whichever is greater"

:hehe:

[joel]

Now that is subversive.

Though at this rate it probably isn't long until the base metal content will be worth more than the legal tender value. It's already true, I think, for the old pre-'81 pennies minted before the copper content was reduced.
And the pre '65 dimes, quarters and half-dollars which are all 90% silver.

Safer, would be to go by the value of the paper that FRNs are printed on. Or, more likely, the market value of the magnetic charge that records the electronic funds in the bank's computer--i.e., $0.

I read that not only is our money not backed up by any commodity, it also is largely not even backed up by actual Federal Reserve Notes--that is, there exist far more U.S. dollars in the world than the combined value of all Federal Reserve Notes. Nearly all of our money is merely microscopic magnetic charges in computers controlled by the people who run the banks--electronic numbers some of which can be increased or decreased at the whim of a handful of people--the Federal Reserve. (the Department of Treasury doesn't actually print more money until owners withdraw it from banks). Now, I don't know about claims that it is all a conspiracy, but it does seem like a bad system.

[Sparko]

I read that not only is our money not backed up by any commodity, it also is largely not even backed up by actual Federal Reserve Notes--that is, there exist far more U.S. dollars in the world than the combined value of all Federal Reserve Notes.

Huh? Dollars ARE Federal Reserve Notes.

[joel]

Huh? Dollars ARE Federal Reserve Notes.
I'm pretty sure a Federal Reserve Note is just the paper.
Like a $5 bill is 1 FRN, but 5 dollars.
And 4 quarters is a dollar, but not a FRN.
My point was just that only a small fraction of dollars in existence are backed by actual, physical dollars. Most dollars are only virtual dollars. Governments no longer "print money" to increase the money supply, they just create more virtual money. Our money doesn't really exist--it's just numbers that don't refer to anything in the physical world.

Which comes back to the question at the beginning of the thread--what is the legal definition of a "dollar"? It would be hard to give it a definition, because if you have X number of dollars in your bank account, X does not actually refer to a quantity of anything in the physical world.