[bryanlarsen]

> 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.

[scarby2]

This isn't a good take.

> 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.

[elil17]

> 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.

That's simply not true. You may get a certain amount of leeway, but it has to be reasonable.

[jjav]

> That's simply not true. You may get a certain amount of leeway, but it has to be reasonable.

Where have you seen this?

When I was doing consulting I could charge whatever rate I wanted. Usually around $200 but went up to $500 and down to $25 when doing a favor. Same type of work.

At the enterprise level this is even more common. Nothing has a fixed price and the same service can be sold at wildly different prices to different customers based on endless variables.

[bryanlarsen]

> I could charge whatever rate I wanted.

Sure, if you're charging cash. If you charge $25 and that's all you get, it's worth $25 by definition; being bad at business is allowed.

But if you're charging $25 and you're getting $25 and a favor, that work you're doing is actually worth more than $25 and the IRS expects you to declare the value of that favor as income. If you normally charge $500 but sometimes you charge $25 the IRS might look deeper to see what else you're getting in compensation.

You're highly likely to get away without declaring that favor, and there are certainly legal ways to avoid it too -- gifts, training/education, et cetera, but at it's base level it's income.

[andix]

No, it doesn't have to be "reasonable". Its only illegal if it is used to cover up some other illegal thing.

For example giving huge discounts below cost only to family members, which is more or less like paying them money without paying taxes for it.

[Flundstrom2]

It might be legal in YOUR jurisdiction, but at least in the jurisdiction I'm in, it is not - AFAIK - legal to neither underwrite or overwrite costs on the sole purpose of avoiding tax or grooming the pig.

[andix]

> on the sole purpose of avoiding tax or grooming the pig

Exactly. But it doesn't have to be used in this way.

[thih9]

Note that we’re talking about two companies exchanging services.

When two companies undervalue the services that they offer to each other, they pay lower taxes. This is the illegal part.

[tstenner]

If the expense is tax deductable, it mostly doesn't matter whether you have $10 earnings vs $10 business expenses or $10K.

[thih9]

Good luck explaining that to the IRS.

[cortesoft]

> 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.

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.

[stymaar]

> 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.

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.

[hattmall]

How would this reduce taxes? If I normally charge 20k for widget Z but only invoice company A 10k because they will see me widget B for 10k and we trade widgets, there is no taxable event. If company A was willing to pay the 20k instead obviously I would rather have that even if it creates 10k taxable income because profit.

Investor fraud is much more likely if neither company actually needs each other's widgets and it's just to pump revenue.

[cjbgkagh]

Tax law is guilty until proven innocent.

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.

[philipallstar]

Okay but then why are we singling this out as tax fraud, if the justification is just "anything can be"? Why not claim that posting on HN is tax fraud?

[cjbgkagh]

Barter counts as income by many tax jurisdictions, if you don’t declare the fair market value of the exchange you are in violation. Most people don’t declare this and it is rarely ever enforced.

[gamblor956]

Tax fraud is treated the same as other crimes and is subject to the same evidentiary threshold.

[cjbgkagh]

It depends on jurisdiction, the US is unusual, most countries they’ll reassess you and it’s on you to prove them wrong.

I did have to look it up, I didn’t know that the US was different in this way. I did have the California tax authority make a mistake and take money directly out of my account and there didn’t appear to be a way to fight it. It wasn’t enough to be worth hiring a lawyer over so I let it go but it didn’t give me much faith in the governance of California, very Kafkaesque.

[gamblor956]

I'm a tax lawyer...

CA FTB does not take money out of your account unless you have explicitly authorized it to do so and it definitely does not do so automatically. It only pulls specifically authorized amounts when specifically authorized to do so unless you have a garnishment order issued by a court. (I deal with the CA FTB on a daily basis.)

You're also wrong about most other countries as well, with the exception of France.

[cjbgkagh]

It is possible my memory, Google, and now AI are all conspiring against me.

It was a vehicle registration issue for a car I had sold 10 years earlier, it got a parking ticket in CA and they used that as evidence I still had the car and owed registration fees. I had evidence the car was sold and had changed title many times since then before the parking ticket but they wouldn’t accept that. I didn’t go to court over this and the money disappeared from my account, I did get a phone call telling me what happened. I had not received any notice prior. As mentioned I’m sure I could have gotten a lawyer for this but legal fees would have exceeded the amount lost, perhaps in the future when I have a lawyer on retainer.

[Gathering6678]

Tax is a complex issue that differs from one jurisdiction to another, and I am in no way an expert in any of them, but I do believe most tax authorities would require fair value exchanges.

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.

[bloppe]

> If the work is performed for $1 or $5000 the government doesn't get a say in that

What if you're getting paid in landscaping?

[scarby2]

On a corporate level it doesn't really matter as you're only taxed on your profits/losses. If we do a service swap ultimately it's just adding a revenue item with a matching loss, and these are infact quantified.

As an individual interestingly it does matter because services received for free are considered taxable income (but businesses are not taxed on their income).

[danielmarkbruce]

You are just making stuff up, this isn't remotely close to how tax law works.

[gamblor956]

The first paragraph is generally correct. The second is not.

Business are taxed on their net income but many jurisdictions tax businesses on their gross revenue as well (look up GRT and GET).

[kube-system]

There are corporate taxes on revenue in some situations

[danielmarkbruce]

This is pure nonsense. In the US the internal revenue code doesn't allow you to just value services however you choose in what is effectively a barter arrangement.

[andix]

> If you do the work but undervalue it, it's likely tax fraud

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.

[thih9]

> Probably not, it's just giving a discount. Nothing wrong with that.

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”.

[andix]

Discounts are often not transparent. Have you ever seen a SaaS that lists "Enterprise pricing: contact us"?

It's basically saying they give you as much discount as you need to be able to afford the service. And those discounts are very secret by design.

[DANmode]

This is actually the most charitable interpretation of “Contact Us”.

If I want to sell my SaaS to small primary schools for 90% off, I should be able to do that.

Probably.

Let’s discuss.

[brandensilva]

If that is fraud then company evaluations are fraud too. Case in point SpaceX and it's smorgasbord of other companies rolled into it to save them.

Who protects the consumer when they have been gutted of any power?

[hapless]

SpaceX and Tesla’s not-so-arm’s-length transaction are like, textbook cases for fraud

It amazes me investors or the sec will put up with it

[cyberge99]

They didn’t. Musk had to pay a 1.5MM fine.

[c7b]

Re taxes: Barter exchanges are considered taxable revenue by the IRS and must be reported on a 1099-B form. [0]

[0] https://en.wikipedia.org/wiki/Barter

Re investors: please list at least one credible source supporting this assertion.

[bryanlarsen]

https://www.law.cornell.edu/wex/securities_act_of_1933

Any lie, misleading omission or misleading half-truth is investor fraud.

[DANmode]

> The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services.

If a firm can’t afford services cash, that’s part of the merit of the choice.

This is not compelling.

[mannanj]

And who chooses how to value unique, innovative and visionary work?

[singleshot_]

Article 1 judges in US Tax Court?

[bryanlarsen]

And the judges are likely to be looking for good faith as much or more than technical accuracy in the valuation. So the IRS is not going to bring you in front of the tax judge unless they have evidence of bad faith.

OTOH, most work is not "unique, innovative and visionary" and has a relatively transparent fair market value.

[singleshot_]

Typically how it works is you pay the taxes assessed, then you sue in Tax Court.