PMs for payroll

[TheMcs]

I saw an article a while back that I cannot find again. Could have been here.
Essentially, a libertarian small business owner offered to pay his employees in silver. Specifically in American Silver Eagles.
Simplified example;
Employee makes $300/week
Silver is at $30/oz
Employer gives employee 10 ASEs, and shows that then employee's income for the week was $10 (ASEs are legal tender, face value $1).

My buddy and I were poking holes in this idea, I was curious about the feedback here.
pros;
low, if any, taxes
potential for your "paycheck" to appreciate by the time you cash it

cons;
assuming Social Security stays funded, you're hosed in old age if you weren't smart with the silver
selling your ASE at lower than spot to get money for bills
potential for your "paycheck" to depreciate by the time you cash it

Seems to be a logistical nightmare in making this work. Can the employer show he spent $300 on payroll while the recipient shows they only received $10?
If the company is large enough, then minimum wage comes into play.

Any thoughts? Anyone have more knowledge of this? Seems like an interesting loophole. Of course, I can't see talking my HR into doing this for me.

 

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[TreasurePirate69]

The bottom line is that the IRS is not going to let this fly so it is useless to even consider it. My guess is that the employee is receiving "compensation" valued at $300 so they are going to be expected to pay income taxes on that amount (regardless of the face value). If they do actually get away with claiming $10 as their wages then they will have to pay capital gains taxes when they trade in the silver for the $300 anyway. As you've mentioned this is a complete nightmare for the business owner and he is not going to be able to claim the $300 as a cost while only paying out $10 in wages. Finally, the employee's social security tax is going to be all screwed up as well.

Your w-2 lists total wages "and compensation". If that business owner falsely reports total compensation then he is looking at serious jail time. But I am not an accountant or tax lawyer.

 

[jim4silver]

TreasurePirate is correct. No way the IRS will let this happen. I may be wrong, but I believe there was one company that did this and somehow won their trial when the IRS went after them (I could be wrong, but I think I remember reading about that a few years ago). But even if that did happen one time, the IRS could go after a company over and over, and eventually they would get a jury who would convict.

On another issue, even if the IRS allowed this to take place or rather simply refused to challenge it, there would be another problem. That problem would be when the company owner goes to deduct said employees' salaries paid over the year when the company filed its tax return. The problem is that the employee would claim the face value of the coins as income, however, the employer would want to deduct the "value" of said coins, or rather what he/she paid for them. That is where the problem would come up for them even IF the IRS did not challenge on the employees' side regarding what they claimed as income. You would have a situation where the employee was claiming say $1 for each silver eagle, and the employer would be wanting to deduct $33 or whatever they cost. No way the IRS would let the employee get away with not claiming enough then let the company claim a full deduction for the cost of the coins. This would be a double whammy against the IRS in collecting revenue if they let such things take place.

Anyone who has ever owned their own business knows what I am saying here.

Jim

 

[TheMcs]

I agree with you both. Jim, I believe you read the same article I am drawing on.

We were sitting around a campfire this weekend trying to make heads or tails out of how that would have worked. We kept going back to the lack of incentive on the employer's side to do this.

 

[Marchas45]

It actually happened in 2007 but has been talked about on the boards for a number of years. The IRS was defeated in the Supreme Court in 2007 but things may have changed since then.
We The People Foundation

 

[TreasurePirate69]

It actually happened in 2007 but has been talked about on the boards for a number of years. The IRS was defeated in the Supreme Court in 2007 but things may have changed since then.
We The People Foundation

interresting and surprising. However, I still believe that if they sell those coins they will still have to pay taxes on the difference between the face value they aquired them for and the profits realized by the sale.