Legal Question in Tax Law in Minnesota

Please tell me if my reasoning is correct or bad.

and if possible why it is.

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I am selling a private service I normally charge 100 dollars for.

and I am paid in legal tender Dollars and Coins.

Note : according to United States statutes American Silver Dollars are Legal Tender.

I notice that one of the coins, a silver dollar, is valuable and could be worth 40 times its face value.

So I give a discount to the customer of 30.

I exchange the coin in the cash drawer with a dollar from my pocket.

I record the transaction for tax purposes, that I received $70 in to the business

And I pay tax on the received coin at its face value $1.00 along with the balance of the income $69.00, totaling $70.00.

Have I broken any law ? (I suspect I have not)

Am I obligated to pay taxes on the additional value of the silver coin in dollars even though it is legal tender and I have not sold it yet and have not realized any gain ?

(I suspect not since I have not realized any gain at this point, and I have not treated as a commodity but rather as legal tender, no tax obligation is incurred yet)

If I later sell it for Dollars am I obligated to pay a capital gains tax ? or some similar tax ?

(which is what I expect to be the case, Since I initially had $1.00 legal tender, I was able to convert it into $40, based on the difference of the face value and what I sold it for I might owe some tax on $39)

If, however, I use it to buy something else just as my customer bought my service and I get a discount on that product, just as I gave my customer a discount, am I free of any additional tax due to its higher value in dollars ? Or can I just consider it equal in effect to using any other legal tender coin ?

( I suspect that no additional tax is owing.)

I reason that Federal Reserve notes and other Treasury Coins, are no more nor less legal tender than is the Silver dollar. I certainly could find no wording in statutes to show preference to one over the other. While they are being used as legal tender they have the same value as depicted on its face. Also I am free to give a customer a discount for whatever reason I deem without penalty on the amount of discount. It is only when I directly exchange the coin with other legal tender of a higher amount that a gain is realized. However I doubt this practice would ever be widely used, and is extraordinary and not customary.

There are some cases of employers paying employees in Silver dollars, and the court ruled against them, however I think it was because the business was so obvious that they were not treating the coins as legal tender, I heard they would pay in silver dollars and them buy them back with federal reserve notes almost immediately. Obviously a tax would be due, since a gain was realized as soon as they bought back the coins. I have never seen a case ruled on or against in which the coin was merely used like any other legal tender coin to later purchase products.


Asked on 12/30/10, 4:40 pm

1 Answer from Attorneys

I am not a tax attorney, but I believe your reasoning may be flawed. You did not give your customer a discount, but accepted the coin (tangible property which you assigned a value of $30) as part of the payment for your services. Once you assign a value other than the face value to currency it changes the coin's status. Let us say that my law firm has a policy that we only accept 1880 U.S. Double Eagle $20 gold coins (I think that's an actual coin) as payment for legal services. It has estimated value of $10,000. I take a case at a flat fee of $10,000. I take the coin as payment in full and offered your "discount." Do you think that The IRS would think my income for legal services was only $20? Or even in your case, what if the coin was worth $100 and you offered a 99% discount? Would your income only be $1?

Therefore, your income is $100 and not $70.

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Answered on 1/09/11, 10:40 am


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