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Boris Rarden

Loop-hole to build a tax-free community in contemporary country

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Is there a legal loop-hole that would allow to build a physical or virtual community that can avoid paying taxes ? Let's say "income taxes" ?

For example -- a community based on barter ? IRS says that barter is still income taxable. However, is there a legal way to barter in a way that there is no paper trail that IRS can latch on ? Maybe some other tricks?

For example, if all members of a community are getting stock of the company, instead of money, and then use the stock as currency, among themselves -- would it still be income taxable? Ordinarily stock must be sold, to be taxed as income. Would this still qualify as barter?

Perhaps, the structure can be registered in another country, say offshore zone -- but people can live in their homeland ?

If there is no paper trail, and all transactions are in cash, can IRS implement an income tax system in a practical way ?

If a loop-hole exists, and we discover it, would the government be able to to issue new laws, closing the community down ? What would it take to issue such new bill or ammendment ?

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Talk to

about the effectiveness of using legal loopholes to avoid taxation. It doesn't matter whether or not the loopholes exist - if your action can be construed as an attempt to avoid taxation, you'll go to jail every time.

If you're interested in doing transactions that cannot be tracked, I would recommend looking into something like Bitcoin, which is basically a decentralized, peer-to-peer transaction system. Bitcoins have been plummeting in price lately (after skyrocketing in price), as the folks who initially invested in it for next-to-nothing are now flooding the market with bitcoins. If it survives this unraveling as an investment (which it wasn't intended to be), it could become a long-term means of exchange.

Edited by brian0918

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I'm not an accountant or tax lawyer so take this with a grain of salt, but I'm pretty sure that even if you are trading stock certificates it would be taxable in the US. If you were just gifting it then it would also be taxable. I think paying in cash would be great as a general rule not just in an enclave. If everyone did so it would likely create an enforcement nightmare. Until they put microchips in the money, at least. ;)

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What if every member of the community is a contractor? A contractor pays taxes only at the end of the year. Which means the problem is only a surplus money (profit) accumulated by the end of the year. If all that profit is invested into some company X just near the end of the year, and then withdrawn at the beginning of the next year, it will appear that there are no net profits to declare. And company X can be declared as non-profit.

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A lot of people have argued that income tax is not legal:

"The cornerstone of Mr. Russo’s case is whether any law requires Americans to pay income taxes on wages. Near the film’s beginning Mr. Russo says, and others appear on screen asserting, that the Internal Revenue Service has refused every request to show any law making Americans liable for an income tax on their wages." [regarding From Freedom to Fascism]

There have been other videos done about who have gone to court and won their cases because they followed this argument. But there have been many others who lost their cases and were fined a ton of money using the exact same argument.

"The large percentage of people not paying income tax is often blamed on tax breaks that zero out many households’ income tax bills and can even result in net payments from the government. While that’s the case for many households, a new TCP paper shows that about half of people who don’t owe income tax are off the rolls not because they take advantage of tax breaks but rather because they have low incomes. For example, a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax." [1]

I guess if you are all really poor contractors, you will be exempt from paying income tax.

Edited by Michele Degges

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While this is an interesting hypothetical discussion, I'd say that Brian is right. For the time being, it is in your best interest to follow the tax code regardless of how sound you think your loophole might be. I suspect Irwin Schiff's situation had something to do with Peter Schiff's decision to run for Senate.

There is an army of tax lawyers that have already found most of the legal tax loopholes and I encourage you to save on taxes in any legal way possible. Any grey areas are likely to land you in jail. I suggest saving time by using a tax lawyer and use that time to advocate change in the tax system. It sucks for me to give a reply that is counter to the purpose of this thread, but extra caution is important where the state is most protective of itself.

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While this is an interesting hypothetical discussion, I'd say that Brian is right. For the time being, it is in your best interest to follow the tax code regardless of how sound you think your loophole might be. I suspect Irwin Schiff's situation had something to do with Peter Schiff's decision to run for Senate.

It had nothing to do with it. Irwin Schiff has been in prison since 2006.

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Is there a legal loop-hole that would allow to build a physical or virtual community that can avoid paying taxes ? Let's say "income taxes" ?

No, not long-term. Even if you found what appeared to be a solution out of coerced tax, you've still got the force of the entire federal government, a long precedent allowing taxation, and the vast majority of the populace actually in support of at least some tax. Those things combined mean that, one way or another, you will not be tax-free for long. The existing code will be (re)interpreted not in your favor, or new code will be enacted. The only real solution is tax reform... or rather "ideas" reform.

And starting another country is just a fantasy. Who will protect this country? Who will agree to move there? Which existing country will allow the separation of land to form a new country? This new country would presumably be smaller than the country from which it separated. What's to stop the larger country from just imposing itself again on the smaller one?

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Is there a legal loop-hole that would allow to build a physical or virtual community that can avoid paying taxes ? Let's say "income taxes" ?

For example -- a community based on barter ? IRS says that barter is still income taxable. However, is there a legal way to barter in a way that there is no paper trail that IRS can latch on ? Maybe some other tricks?

For example, if all members of a community are getting stock of the company, instead of money, and then use the stock as currency, among themselves -- would it still be income taxable? Ordinarily stock must be sold, to be taxed as income. Would this still qualify as barter?

Perhaps, the structure can be registered in another country, say offshore zone -- but people can live in their homeland ?

If there is no paper trail, and all transactions are in cash, can IRS implement an income tax system in a practical way ?

If a loop-hole exists, and we discover it, would the government be able to to issue new laws, closing the community down ? What would it take to issue such new bill or ammendment ?

Silver.

We had a great little network of traders up and running until the Liberty Dollar screwed everything up by minting coins that looked like US coins and got itself busted.

Trade in silver.

I'll be more than happy to take some off your hands.

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It had nothing to do with it. Irwin Schiff has been in prison since 2006.

Of course it happened before Peter's Senate run. The only way the timing of the arrest would disqualify my speculation would be if the arrest happened after the election. I find it hard to believe that Peter didn't plan on using his influence to try to obtain a pardon for his father after becoming a Senator.

Edited by FeatherFall
clarity

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I use Square Foot Gardening at my home. It's awesome. I'm about to harvest the last of my cabbage and broccoli. Yummy.

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What if every member of the community is a contractor?

That would never pass muster in Australia, just from the labour-law aspect alone. There are rules for the determination of what is a genuine contractor relationship and what is in economic substance an employment relationship pretending not to be. Look for similar rules in the US - I'd be very surprised if they didn't exist.

JJM

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Is there a legal loop-hole that would allow to build a physical or virtual community that can avoid paying taxes ? Let's say "income taxes" ?

For example -- a community based on barter ?

Here is the crux of the issue. A person tries to avoid using gov't currency by bartering, and is still held taxable by the gov't. Bartering, except under certain rare circumstances, is an extremely inefficient means of exchanging value. A minimum standard of taxed currency should be that the tax is less than the efficiency lost in not using gov't backed money for transactions. A currency incurring taxes on transactions could be moral, if the after-tax value of the currency exchange is greater than the value of a barter exchange or the risk-adjusted value of an exchange made with non-gov't-backed currency. The only reasonable way to enact a moral currency and a moral taxation system is for the gov't to allow transactions in other than gov't currency to go untaxed. This would provide an economic pressure for the gov't to behave itself, keep taxes low, balance its ledgers and provide adequate protection of gov't currency transactions and contracts. All the rest would then fall into place, and a well-regulated gov't currency would maintain its status as the standard money in an economy.

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Is there a legal loop-hole that would allow to build a physical or virtual community that can avoid paying taxes ? Let's say "income taxes" ?

You realize that by asking this question you are showing intent to evade taxes and this can be used as evidence against you even if you find a "legal" loophole?

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Is there a legal loop-hole that would allow to build a physical or virtual community that can avoid paying taxes ? Let's say "income taxes" ?

Well, if you make little enough, you don't pay income taxes in the US. In fact half of the country doesn't pay them on the federal level, I doubt the situation is any different on a local level. But other than that, no, income taxes are by definition something everyone is legally obligated to pay.

Even if you are desperate to avoid taxation (because taxes are so high that it's impossible for your business to stay afloat and pay them), there is always a better solution than risking jail: moving to a country like Hong Kong or Singapore, where the level of taxation is half of that in the United States or Japan, and a third of that in Germany, France, etc.

As long as there are places with 15-20% income and corporate taxes, maybe the occasional VAT, trying to make a living off of tax evasion somewhere else is just a silly plan to have.

Edited by Nicky

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You realize that by asking this question you are showing intent to evade taxes and this can be used as evidence against you even if you find a "legal" loophole?

He asked about legal means. Tax avoidance is not illegal; you are allowed to change your (legal) behavior to reduce your taxes. Tax evasion, on the other hand, defined basically as breaking the law to avoid paying taxes you are legally required to pay, is illegal.

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He asked about legal means. Tax avoidance is not illegal; you are allowed to change your (legal) behavior to reduce your taxes. Tax evasion, on the other hand, defined basically as breaking the law to avoid paying taxes you are legally required to pay, is illegal.

In his most recent speech, didn't Obama make a forceful-sounding point about people paying their maximum share of taxes? It sounded a lot like condemning tax avoidance, not just tax evasion.

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There are some companies that facilitate barter between businesses. I've read that there was a boomlet of them in the 1970's but the IRS clamped down and formalized the law so that transactions must be reported, and taxes must be paid. Nevertheless, I'd guess that business-owners who barter have a little leeway about the notional dollar value they place on the services they give/receive. Might work in limited instances, but there's a pretty good reason people use money rather than bartering.

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In his most recent speech, didn't Obama make a forceful-sounding point about people paying their maximum share of taxes? It sounded a lot like condemning tax avoidance, not just tax evasion.

He can rail against it--but advising people to do it (as Boris did) cannot be construed as advising people to break the law. (Please remember the context of my comment.)

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(Please remember the context of my comment.)

Oh, that was just a side comment about ominous Obama. Sorry it wasn't clear.

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JASKN: We can start a new country if we do it in a place no body wants to live in. Like Sahara desert. Noboby will bother us for a while, until we gonna have something really good that everybody wants. We would not have a way to protect it, but we will need to create a copy of every technological innovation and store it as a backup somewhere remote. When someone would try to take our work away from us, we will threaten them that we will destroy it. We would send a message. And while we build the Galts Gulch, we have to also build a presence in the real world, so that if we loose our creation, we have something to bounce on for a rebound. By that I mean, real estate, and bank accounts spread out around the world. We can continue doing that generation after generation, until the right message will reach the general public.

As our immediate need we have to select an unlivable place -- too hot, or too cold, and then think of an energy source, and pull our money together for doing it. In our global economy and easily accessible information it is doable.

Edited by Boris Rarden

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The way to pay the least amount of taxes is to be nearly self-sufficient and not engage in much trade with others.

I recommend the book and website "Early Retirement Extreme" by Jacob Lund Fisker as an example on how to do this.

The solution consists in becoming a "renaissance man" who solves most of his own problems instead of outsourcing them. For example, instead of hiring a plumber on call to unplug your toilet for $120, invest a minimal amount of time to understand the most recurring pipe problems and fix them yourself. Thus you can fix them faster because you don't pay the transactional cost of waiting for the outsourced help to arrive, and cheaper, because you will not pay high fees which exist mainly due professional licensing laws.

Gardening, like mentioned above, is also an answer. But garden the things that have the greatest effort to reward ratio for you (this is not just on prices). For example, unless you really love the taste of a fresh sweet potato dug from your garden, modern mechanized farming will produce them comparatively efficiently for you. But herbs on the other hand taste much better when fresh, are somewhat expensive at the store, and do not go bad when you just pluck them and throw them into your soup rather than sitting at the bottom of your vegetable crisper. Also keep in mind the transactional costs: time spent going to the store shopping, money spent on transportation there, etc. Most people see the time invested in gardening but not the time and money invested in shopping and transporting oneself. If I need herbs, it is much more convenient for me to pluck them off my window sill than get dressed and go to the store to buy them.

Also, as much as you can, avoid the items that are taxed at absurd rates: typically alcohol, tobacco, and gasoline in most industrialized countries. If you want to have these, you can make them yourself very cheaply, except for the latter. For gasoline, think of creative solutions to reduce your gasoline use, such as living biking distance from where you work and buy groceries.

If you have systematically organized your life in such a way, you will find that you can live a middle class lifestyle on only a few thousand dollars per year. In many industrialized nations, you will fall under the minimum income tax rate, or on the lowest income tax bracket. In many cases you will be able to provide for yourself solely through dividend income (which is often penalized less than employee income). Then you might want to devote all of your free time that you don't have to spend working on non-renumerated activities that reward you spiritually or physically but not in monetary form. Examples are exercise, intellectual activism, human relationships, et cetera, that cannot be penalized by the government. For example, when I exercise and eat well, 100% of the health and well-being gains are mine, because the government does not attempt to force me to redistribute them somehow. If I devote much of my time to enjoying relationships with my family and friends, 100% of the pleasure is mine and is currently not taxed. Maybe in the future, the government might find that you are healthier than other people and force you to provide exercise classes to fat smokers, but not yet.

Edited by ex_banana-eater

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