Cashless Deal

[Corduroy Frog]

Independent truck driver is suffering due to the bad economy, and is trying to sell one of his two trucks.

A potential buyer has showed up. Doesn't have any money. Seller doesn't have any money either, but has a route with a customer.

Buyer and seller are not agreed as to price for the truck. But buyer has agreed to drive the truck for the seller, and after driving 4 routes, will return and buy the truck for $20,000. Seller's adjusted basis is $28,000, but this may or may not be what it's market value is. Everyone knows that the used truck market is battered right now, big time.

Obviously, the buyer is not driving for free. However, neither party wants any compensation to be reported under the arrangement. Seller wants to report the sale at a loss, and buyer wants to record the purchase at the reduced price.

How would someone assign a value to compensation under this arrangement? I'm not going to be popular with these guys, but this is a blatant arrangement to avoid reporting.

[taxea]

You do it by following the law not what the client wants. taxea

[Corduroy Frog]

Allow me to repeat...

...the question, Wahiawa...

"How would someone assign a value to compensation under this arrangement?"

[David1980]

You can go at this a couple different ways.

One, determine the real value of the truck. If the truck is worth $25,000 you have $5,000 income for the buyer.

Two, determine the going rate of the labor. If the seller would have to pay $5,000 to have someone drive those 4 rates use $5,000.

I would go with whatever is easier to obtain. If the goal is to minimize compensation, the value of the truck might do a better job there. It certainly would be easier to collect supporting documents for the value of the truck as well. Search some classifieds for a truck as close to that truck as you can (similar miles on it, features, etc.) Take a few and average and use that as the "true" value to base the compensation off of.

[erchess]

Bad situation

Seller is going to report and deduct wages without corresponding cash outlay and is going to end up comparing sales price including wages with basis and deducting a loss.

Buyer of course will be angry at the seller and the tax pro when he gets a 1099 misc but what will seller do if buyer contacts IRS to complain that he should have been an employee? Or would the Seller prefer to pay FICA and FUTA now?

The bottom line is that I think I would get out of this arrangement if I were the tax professional. These fellows are trying to gyp the government and no transfer of the truck that is unequivocally within the law will satisfy them.

[FEDUKE404]

Beat feet, quickly!

The bottom line is that I think I would get out of this arrangement if I were the tax professional. These fellows are trying to gyp the government and no transfer of the truck that is unequivocally within the law will satisfy them.

I could not have said it better, erchess.

Something about close-proximity to canines and small jumping insects comes to mind...


They can always pay an attorney to draw up an agreement.....and it's even deductible!

FE

[Jesse]

.............
Obviously, the buyer is not driving for free. However, neither party wants any compensation to be reported under the arrangement. Seller wants to report the sale at a loss, and buyer wants to record the purchase at the reduced price.

How would someone assign a value to compensation under this arrangement? I'm not going to be popular with these guys, but this is a blatant arrangement to avoid reporting.

There is nothing wrong with wanting, but of course we can't always get what we want! As you said you are not going to be popular with these guys, but it's probably not the first time you gave someone an answer they did not want to hear, and surely it won't be the last time.

You can go at this a couple different ways.

One, determine the real value of the truck. If the truck is worth $25,000 you have $5,000 income for the buyer.

Two, determine the going rate of the labor. If the seller would have to pay $5,000 to have someone drive those 4 rates use $5,000.

I would go with whatever is easier to obtain. If the goal is to minimize compensation, the value of the truck might do a better job there. It certainly would be easier to collect supporting documents for the value of the truck as well. Search some classifieds for a truck as close to that truck as you can (similar miles on it, features, etc.) Take a few and average and use that as the "true" value to base the compensation off of.

I think this is an excellent answer to your actual question. I don't think you will find a black and white answer to your question. Use your best judgement and document well. A legal contract also sounds like a good idea, that way if one of the two decides not to report something correctly, you can refer back to the agreement. If they don't like the answer you are giving then you can tell them they need to find someone else.

[JohnH]

It might even be a good tactic to begin with the statement "You're not going to like the answer I'm about to give you, but I'm sure if you look around long enough you'll find someone willing to do it your way." By front loading the conversation this way, you take away their right to try and change your advice or argue with you. I've used a version of this on numerous occasions.

[Corduroy Frog]

Thanks

Thanks to all for the responses. Rest assured, this travesty is not going to occur on my watch.

After vehicles become so old, finding comparative pricing becomes unreliable. The price becomes more a function of care and repair than model and year.

The seller knows where I'm headed. He says he can determine the price AFTER the guy makes his runs, but says he has no idea what it is worth today.

I was born at night, but not last night. Sometimes it's downright insulting how stupid they think we are.

[Uncle Sam]

Cashless Deal

Aside from the price and compensation problem, if the buyer is using the seller's truck to test the route out, who is going to be responsible for damages should an accident occur?

These clients and their under the table tactics wind up in trouble should something go wrong.