Small businesses are cash strapped. So you find someone who needs your services and you need their services. Instead of exchanging cash, you exchange invoices and do the work. You build them, say, a $5000 website, they perform, say, $5000 of landscaping.
At big boy levels this is often structured as “strategic partnership”.
The part that makes it not fraud is that both parties do actually do the work.
It's far more nuanced than that.
If you do the work but undervalue it, it's likely tax fraud.
If you do the work but overvalue it, it's likely investor fraud.
Even if you fairly value the work it still might be investor fraud. The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.
> If you do the work but undervalue it, it's likely tax fraud.
A company can value it's services as it chooses. If the work is performed for $1 or $5000 the government doesn't get a say in that.
> you do the work but overvalue it, it's likely investor fraud.
Quite possibly. Assuming this was done with the intention of misrepresenting your revenue and gaining investment.
>The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.
Vendors are chosen all the time because of their willingness to accept specific payment terms and a whole bunch of non-merit pipelines via family, via golf course deals etc.
That's simply not true. You may get a certain amount of leeway, but it has to be reasonable.
Whether it you think it should or not depends on your personal preferences, but in practice the government does get a say in anything that it deems to be an undue way to reduce your taxes.
Barter would be much more common if it was a legal way of avoiding taxes.
It isn’t that black and white. If you are being paid in cash, you can charge whatever you want, that is true. But if you are exchanging goods or services for other goods or services, the government is going to care how you value that transaction.
Which means, "If the work is performed for $1 or $5000 the government doesn't get a say in that." --- it absolutely does, in the way of requiring the person getting a "$1 service" to calculate their tax as if they got $5000.
Investor fraud is usually brought as a civil case and takes a balance of evidence approach.
Since enforcement is stochastic and rare these practices are pretty common. The freedom to do ‘whatever’ is really dependent on the discretion of the government and investors. Most companies can and do fly under the radar but have to be careful not to piss off the wrong people.
What if you're getting paid in landscaping?
Probably not, it's just giving a discount. Nothing wrong with that. Many companies sell goods or services below cost. To gain other benefits like market share, or new customers. Why not do it to get something else essential from another company?
> If you do the work but overvalue it, it's likely investor fraud
It probably depends on the situation. If it's mainly used to inflate sales figures and scam investors, then probably yes. If it's just a "good deal" then probably not.
Discounting and undervaluing have differences, one of them is transparency. As you say, many companies offer discounts and don’t hide that. People who commit tax fraud usually aren’t transparent about their “discounts”.
Who protects the consumer when they have been gutted of any power?
It amazes me investors or the sec will put up with it
If a firm can’t afford services cash, that’s part of the merit of the choice.
This is not compelling.
[0] https://en.wikipedia.org/wiki/Barter
Re investors: please list at least one credible source supporting this assertion.
Any lie, misleading omission or misleading half-truth is investor fraud.
https://www.econlib.org/archives/2012/01/an_answer_to_a.html
> True, at the beginning each resident has a $100 liability. But each also has an offsetting financial asset of $100. At the end, they all have neither. So the $100 bill acts as a clearing mechanism
Loans without any economic performance of services generate circular meaningless cash flows yeah, but that's not the case when services are actually performed.
Loans are promises to pay. Business deals are promises to perform services or deliver goods. The difference is easily lost in the details even for accountants and economists.
The one op is referencing is more like the dollar is used to pay off the waitstaff, who pay their rent to the landlord, who pay their over due taxes, so that the government can issue a refund to the cafe owner. The dollar ends up back in the hands of the cafe owner, who puts it back down on the table with all the debts paid off.
https://www.ato.gov.au/businesses-and-organisations/gst-exci...
I am sure people avoid the tax element this way, but it's not a sustainable way to go.
Let's say I do a website for $5,000 (putting aside that this a dead industry, and my career for the past 20 years) and the landscaper comes to do the work at my house.
If he cuts a powerline, falls down a hole or chops off his hand, we have a big insurance problem. No paperwork, no contract.
I have had friends who did their side of the contra deal and never got the other part of the bargain fulfilled.
Things like 'I'll paint your house if you can help fix up this old car of mine.'
I have turned down these deals in the past. Same as someone asking me to work for free for 'exposure'.
I am not having a go at the comment above as I think the point is valid - small business doing this is fraud, big business do it and it's fine.
Just my advice to anyone thinking it might work for them. Send the invoice, do the work, get paid in money.
My company builds your company a website, and "charge" $1,000,000 for it.
Your company mows my company's lawn and "charge" $1,000,000 for it.
Both companies now have $1,000,000 in revenue from this transaction.
Under ASC 606 you can't just allocate any old number you like. On top of this, no auditor would sign off on what you suggested. The IRS would be looking at you and get you on tax fraud, you'd likely be committing securities fraud, bank fraud, wire fraud and 26 other things I can't think of, assuming you are a business of any size at all.
I just have personal experience where the person offering from one side often wants to avoid the tax. In Australia we have 10% GST/VAT. Pay someone and there is 30% payrol tax (even as a sole trader). Then 12% mandatory pension contribution.
So the $5000 website/landscaping turns into 3k cash in hand.
Enticing to avoid this if you can, but I am risk adverse - clients pay me off the back of this. It balances the risk appetite of a business owner who could cut corners, with me sayng not to. If they do, at least I made the risk clear.
But your point is valid and correct. There is nothing wrong with contra deals where it's booked properly.
Two adults, a legal subject, sufficiently specified, offer, acceptance, consideration, mutual assent… a contract.
You get $5000 of revenue but spent $5000 on services.
You also have to pay taxes on that $5000 like other revenue.
So many small businesses will try to just exchange the services more directly in some way, or give steep discounts. (Tip: This doesn’t mean it’s entirely correct for tax/legal/accounting purposes, so don’t do big deals like this without consulting professionals. I’m just saying this is what’s done by some people)
> The part that makes it not fraud is that both parties do actually do the work.
The cheap criticisms of these deals always miss this part: something of value is traded for the dollars by both parties. Companies can’t simply circulate dollars between themselves.
Businesses do not pay taxes on revenue, they pay taxes on profit.
Other taxes may be applicable though (such as VAT or sales taxes).
The problem comes when the $5k you “traded” also didn’t cover the actual expense to provide the $5k you “earned” - now you have an actual loss even if cash didn’t flow.
What taxes are owed on revenue? Tou pay taxes on profit only.
Yeah, they’re getting useful things but they aren’t making money.
> fraud is that both parties
> do actually do the work.
Do they though?
https://web.archive.org/web/20260515043739/https://www.revsw...
That gave me a chuckle. Too real.
If you search for "vat carousel" today, it seems this is still a thing.
If something can't be monitored with minimal effort, it only serves to enrich the legal/accountancy/hr/admin priest caste.
The amount of labour wasted on moving numbers around numbers is staggering.
edit: Between the government and businesses, VAT costs 5% in admin fees to raise. In a modern world where most transactions are digital, is this a great use of resources?
My current belief is that there should really just be a wealth tax on assets (Federal) and a land value tax on land (States); nothing else.
https://taxfoundation.org/blog/value-added-tax-vat-progressi...
https://taxfoundation.org/blog/value-added-tax-vat-progressi...
> We take 2% of every swap. Then we swap our revenue with another platform.
This is why substance over form is a thing in revenue accounting. Unless you're an American AI company ofc.
Those things have more money than the world, and can't change anything about their business without the house of cards of their investment image falling down.
Yeah that doesn’t sound Ponzi-adjacent at all
Read the whitepaper*
*there is no whitepaper
But wtf is up with Firefox? It doesn't like the site's SSL. Okay, they missed points 7, 18 and 24 to 31 in the current security theater checklist.
An error occurred during a connection to revswap.ai. Cannot communicate securely with peer: no common encryption algorithm(s).
Error code: SSL_ERROR_NO_CYPHER_OVERLAP
Whatever?
Hmm if i edit the link to http i get a cloudflare error page. Someone censoring?
And what does it say about the modern internet that the first two things i thought of are security theater and vendor censorship?
Can it also generate SOC2 certifications in days?
> Yet another hedge fund manager explained Icelandic banking to me this way: you have a dog, and I have a cat. We agree that each is worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners but Icelandic banks, with a billion dollars in new assets.
Two economists are walking through a cow pasture.
The first economist says to the other “I’ll pay you $100 to eat that pile of shit.” The second economist takes the $100 and eats the pile of shit.
They continue walking until they come across a second pile of shit. The second economist turns to the first and says “I’ll pay you $100 to eat that pile of shit.” The first economist takes the $100 and eats a pile of shit.
Walking a little more, the first economist looks at the second and says, "You know, I gave you $100 to eat shit, then you gave me back the same $100 to eat shit. I can't help but feel like we both just ate shit for nothing."
"That's not true", responded the second economist. "We increased the GDP by $200!"
Like you have a measure (GDP) and it can't accurate measure things unless a sale occurs. So even if the money is a wash there was an actual activity occurring in the economy and now it's recorded.
For example, if you've ever wondered why useless art trades at such eye-watering valuations, the answer is that the high valuations are fictions that governments will accept for tax purposes, from which you can derive a variety of exciting tax consequences: https://naturalist.gallery/blogs/journal/understanding-the-f... more-or-less because they agree among themselves what the art is valuated at for their own benefit.
Let's just say if you really want to commit crimes, don't start with challenging the IRS. Just don't. There's so many horror stories about that.
But it's all for mocking the current market... so.
The result? The GDP goes up two million and we both have shit eating grins.
