# Tax madness



## Laxplayer (Apr 26, 2006)

The 21 year old New York man who caught Barry Bonds historic homerun must sell the ball because he must pay taxes on it if he keeps it. 

Now, I can see that he has to pay taxes on his profit from selling the ball, but paying taxes on it if he keeps it is crazy IMO. Until he sells it for a big profit, wouldn't it be the same as catching any other ball? What if he takes it outside and plays catch with it and maybe hits it a few times...can he claim a loss? 
Maybe Phinn was right about the IRS.


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## Wayfarer (Mar 19, 2006)

Hey, he has to "pay his fair share" after all! Is it fair he got that ball and no one else did? Where's the justice in that!?


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## Acct2000 (Sep 24, 2005)

I wonder if an ordinary cash basis taxpayer would have to pay unless cash was exchanged. 

How could the IRS value it, anyway?

This could be an interesting case if he wanted to bring it to tax court.

I am not a tax attorney, so I may be missing something.


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## jbmcb (Sep 7, 2005)

My understanding is that, at most, the IRS could consider the ball a gain/income/gift/whatever, and collect on the inherent value of a baseball, probably around $2. If he sold it it would be considered capital gains on an investment, and he'd pay taxes on that, but not until the time of sale.

I mean, how do you place a value on a unique item that has a completely arbitrary value if it hasn't sold yet?


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## Laxplayer (Apr 26, 2006)

jbmcb said:


> My understanding is that, at most, the IRS could consider the ball a gain/income/gift/whatever, and collect on the *inherent value of a baseball, probably around $2.* If he sold it it would be considered capital gains on an investment, and he'd pay taxes on that, but not until the time of sale.
> 
> I mean, how do you place a value on a unique item that has a completely arbitrary value if it hasn't sold yet?


$12.99 at Dick's Sporting Goods.


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## omairp (Aug 21, 2006)

I like how his decision to sell is based on the sound advice of "several people" with no indication of them being accountants or lawyers who are supposed to know this stuff. He would not be well advised to blindly trust them. I'm not familiar with US tax law but if its anything like Canadian tax law in this respect, the value of the ball will only be whatever MLB paid for the ball unless he sells it. Surely he can come up with the appropriate amount of tax to cover a $2 ball.


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## Karl89 (Feb 20, 2005)

omarip,

You criticize the guy bc he may be taking advice from non experts, yet you, who freely admit have little knowledge of US tax law, determine that ball is worth $2 USD.

I don't know what the ball is worth but I do know what your opinion is worth.

Karl


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## rkipperman (Mar 19, 2006)

The value of the ball is what he could get for it on the market. Based on the offers he has received, it's possible to come up with a ballpark (no pun intentded) figure. 

Let's say the average offer was $500k (I just made up that amount) he would have ordinary income of $500k. If he sells the ball a year later for $400K, he would have a capital loss of $100k. That loss can be used to offset capital gains from that year, and if he has more capital losses than gains, he can take a net capital loss of $3K for the year, and carryover the rest to future years.


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## rkipperman (Mar 19, 2006)

omairp said:


> I like how his decision to sell is based on the sound advice of "several people" with no indication of them being accountants or lawyers who are supposed to know this stuff. There are many dumb people who will dole out tax and legal advice without knowing what they're talking about, he would be just as dumb to blindly trust them. I'm not familiar with US tax law but if its anything like Canadian tax law in this respect, the value of the ball will only be whatever MLB paid for the ball unless he sells it. Surely he can come up with the appropriate amount of tax to cover a $2 ball.


I don't know jack s^&* about Canadian tax law, but I'd be surprised if you are correct.


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## omairp (Aug 21, 2006)

I maybe have been unnecessarily harsh on the guy himself in my first post, maybe he honestly doesn't know who to turn to for advice. But the guy does have some personal responsibility to protect what may be the biggest windfall of his life. It may well be unscrupulous dealers looking to buy this ball from him that are giving him this advice in the first place.

It seems the only reasonable treatment would be to value this item at cost until he sells it. Maybe you want to define cost as the cost of the ball, or maybe you want define it as the cost of the ticket the guy purchased to attend the ball game.

But what crazy tax regime makes you pay capital gains tax on something before you actually sell it? If you buy a $200,000 house and property values rise 50% in your area, will they make you pay income taxes on that $100,000 capital gain before you sell it? Assessing that would be much easier than pegging an estimate on what this ball is worth. If any country had a rule requiring you to pay an estimated capital gain before you actually realized it, I suspect most people would be bankrupt. Any good tax system is designed to make you pay taxes when you make money, not coerce you into making decisions in order to avoid bankruptcy.

By the way, if you're wondering why I talk about tax law in Canada, it's because I'm an accountant for a major accounting firm here, we handle lots of corporate/personal taxation.


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## rkipperman (Mar 19, 2006)

omairp said:


> But what crazy tax regime makes you pay capital gains tax on something before you actually sell it? .


It's not capital gains tax, it's an ordinary income tax. As an ordinary income tax, it's not subject to the preferential rate given to capital gains.



omairp said:


> If you buy a $200,000 house and property values rise 50% in your area, will they make you pay income taxes on that $100,000 capital gain before you sell it? .


 No. If he'd bought the ball *before *the game and that ball increased in value during the game, the increase in value would not be subject to tax.



omairp said:


> If any country had a rule requiring you to pay an estimated capital gain before you actually realized it, I suspect most people would be bankrupt.


It's not an estimated tax. It's tax on actual value "caught." The issue is how to value the ball.


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## omairp (Aug 21, 2006)

Well, I don't agree with your assessment that this is regular income, since he will need to sell it in order to realize any gain. But this is all arguable. I think I remember reading somewhere that legislation is generally interpreted in the light most favourable to the weaker party (in this case the guy who caught it.) But that could be only Canada.

*But here's the official word from the IRS:*
_
"The IRS refuses to comment on the matter. Herman asked IRS chief counsel and baseball fanatic Don Korb, who responded, "*Please, whatever you do, don't ask me that question."*" 
_
https://blogs.wsj.com/law/2007/07/25/tax-law-final-exam-question-barry-bondss-ball/


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## rkipperman (Mar 19, 2006)

omairp said:


> Well, I don't agree with your assessment that this is regular income, since he will need to sell it in order to realize any gain. But this is all arguable. I think I remember reading somewhere that legislation is generally interpreted in the light most favourable to the weaker party (in this case the guy who caught it.) But that could be only Canada.
> 
> *But here's the official word from the IRS:*
> _
> ...


Reading b/w the lines, the IRS is saying "that it's fully taxable, but since most people are unfamiliar with US tax law, we look stupid, so we have a choice - we can lie and say it's tax free or look stupid. So we choose to say nothing."


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## omairp (Aug 21, 2006)

The IRS is shy about laying claim to money owed to them? I've never heard of that before. :icon_smile_big:

I interpreted his statement to mean "We still haven't figured out of we can claim this money without a lengthy legal battle."


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## rkipperman (Mar 19, 2006)

omairp said:


> The IRS is shy about laying claim to money owed to them? I've never heard of that before. :icon_smile_big:
> 
> I interpreted his statement to mean "We still haven't figured out of we can claim this money without a lengthy legal battle."


I don't think there is even a question - it's taxable. It's not the first time that the IRS has not laid claim to money owed to them. One example, is frequent flyer miles earned on flights paid by an employer but retained by the employee. It's clearly taxable, but it's difficult to value (like the baseball) and makes the IRS look bad (like the baseball).


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## omairp (Aug 21, 2006)

rkipperman said:


> One example, is frequent flyer miles earned on flights paid by an employer but retained by the employee. It's clearly taxable, but it's difficult to value (like the baseball) and makes the IRS look bad (like the baseball).


Unlike air miles, he can't spend a baseball. He has to sell the baseball and and realize a *capital gain* before he can access any of the financial benefits of ownership. If it's a valuation issue, he can argue he got it for free so there is no cost, or he can argue the cost is the cost of his tickets to the game, or the cost is the cost of the ball. Arguing that the market value is the value of the baseball is by far the least reasonable interpretation.

Maybe the IRS will eventually go after the market value whether or not he sells it, I'm basing my argument on the assumption that the IRS is a moderately reasonable taxation authority. That could turn out to be a horrible assumption. :icon_pale:


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## Spence (Feb 28, 2006)

I can't for the life of me see how catching a ball constitutes a transaction that's taxable...unless the ball had a tangible value before it was caught and it was a gift. Considering the ball was not a homerun until the person caught it, it was just a baseball.

-spence


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## rkipperman (Mar 19, 2006)

omairp said:


> If it's a valuation issue, he can argue he got it for free so there is no cost, or he can argue the cost is the cost of his tickets to the game, or the cost is the cost of the ball. Arguing that the market value is the value of the baseball is by far the least reasonable interpretation.


Oy vey. Where do I begin. You are confusing cost with value. The two are very different. Even if his ticket to the game was free, and hence his cost is zero, the value is not dependent on his cost. Value is determined by what it would sell for on the market.


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## omairp (Aug 21, 2006)

rkipperman said:


> Oy vey. Where do I begin. You are confusing cost with value. The two are very different. Even if his ticket to the game was free, and hence his cost is zero, the value is not dependent on his cost. Value is determined by what it would sell for on the market.


Whether we use the term "cost" or "value", I was referring to the number he reports on his income tax statement. He can just as well claim the value was $0 at the time of the transaction because two non-related parties (him and MLB) freely exchanged the asset for that price. I know you've already disagreed with that, but like Spence pointed out, the ball was just another baseball until this guy caught it. It can be argued either way, that's why the IRS is refusing to answer the question.

ic12337:


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## rkipperman (Mar 19, 2006)

omairp said:


> Whether we use the term "cost" or "value", I was referring to the number he reports on his income tax statement. He can just as well claim the value was $0 at the time of the transaction because two non-related parties (him and MLB) freely exchanged the asset for that price. I know you've already disagreed with that, but like Spence pointed out, the ball was just another baseball until this guy caught it. It can be argued either way, that's why the IRS is refusing to answer the question.
> 
> ic12337:


So using your logic, if someone finds $1 million in the street, the value of the find is zero, because it exchanged hands between two unrelated parties for no consideration, correct? By extension, the finder would not have to pay tax on the find, correct?


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## Spence (Feb 28, 2006)

rkipperman said:


> So using your logic, if someone finds $1 million in the street, the value of the find is zero, because it exchanged hands between two unrelated parties for no consideration, correct? By extension, the finder would not have to pay tax on the find, correct?


Well, in that case the money had a hard value before the transaction so there's little to argue.

But in this case the baseball was worth perhaps ten bucks before it touched the person's hands, and it's value quite variable from that point on. Would the taxable amount be at the moment of capture, a week later, when the catcher did their taxes?

I can see why the IRS wouldn't want to comment.

-spence


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## omairp (Aug 21, 2006)

rkipperman said:


> So using your logic, if someone finds $1 million in the street, the value of the find is zero, because it exchanged hands between two unrelated parties for no consideration, correct? By extension, the finder would not have to pay tax on the find, correct?


Well this whole matter of the baseball like many accounting issues is a matter of professional judgment, which is precisely why the IRS refuses to opine on it at this point in time.

In your hypothetical there are a few differences:
1) It's unclear if this was a free exchange, I'd question why anyone would leave $1 million in streets. If someone loses $1 million then its not a free exchange.
2) The cash is far easier to value than a baseball.
3) The person who picks up the cash can spend the cash right away. There's very little difference between that and a $1 million bonus from work, so I would think that it would be taxed as income. However, if he picked up a baseball that turned out to be worth $1 million in the park, I'd say he shouldn't have to pay taxes on it until he sells it.


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## rkipperman (Mar 19, 2006)

Spence said:


> Well, in that case the money had a hard value before the transaction so there's little to argue.
> 
> But in this case the baseball was worth perhaps ten bucks before it touched the person's hands, and it's value quite variable from that point on. Would the taxable amount be at the moment of capture, a week later, when the catcher did their taxes?
> 
> ...


Value is determined when he acquires it (i.e., when it touches his hand). However, did the ball fall directly into his hand, or did he pick it up? Even if it fell directly into his hands, the value increased as soon as it cleared the fence.


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## JDC (Dec 2, 2006)

Even a forum of accountants can't agree on this one:



Talk about madness? Personally I would have returned the ball to Bonds right after the game.


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## omairp (Aug 21, 2006)

*Bottom Line:* This guy needs a good tax lawyer if the IRS comes after him to claim it as income tax. If I were his accountant, I would fight tooth and nail for him. It's just not fair to force the guy to sell it to pay the taxes on it.


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## omairp (Aug 21, 2006)

FrankDC said:


> .


Thanks for the link Frank. Most brilliant response from that website:

_"For those of you that think it catching the ball is a taxable event, do you think that everyone else sitting in that section of the stands suffered a taxable loss for having not gotten the ball?"_


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## rkipperman (Mar 19, 2006)

omairp said:


> Thanks for the link Frank. Most brilliant response from that website:
> 
> _"For those of you that think it catching the ball is a taxable event, do you think that everyone else sitting in that section of the stands suffered a taxable loss for having not gotten the ball?"_


...and those who don't win the lottery have a taxable loss as well.


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## agnash (Jul 24, 2006)

omairp said:


> *Bottom Line:* This guy needs a good tax lawyer if the IRS comes after him to claim it as income tax. If I were his accountant, I would fight tooth and nail for him. It's just not fair to force the guy to sell it to pay the taxes on it.


I think this is the real issue with why he has to sell the ball. The IRS does not know if they can tax it before he sells it, all of the accountants do no't know either, nor do the tax lawyers. The way the issue would probably be settled is through a lengthy, and costly, court battle.

I have a masters degree in U.S. tax accounting, and I agree with guy in the WSJ article, that it could go either way.


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## rkipperman (Mar 19, 2006)

agnash said:


> I think this is the real issue with why he has to sell the ball. The IRS does not know if they can tax it before he sells it, all of the accountants do no't know either, nor do the tax lawyers. The way the issue would probably be settled is through a lengthy, and costly, court battle.
> 
> I have a masters degree in U.S. tax accounting, and I agree with guy in the WSJ article, that it could go either way.


Is that a degree in accounting or tax?


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## Albert (Feb 15, 2006)

Gentlemen,

At least in Europe, it is not uncommon for people to be forced to sell their heirloom in order to pay the inheritance taxes on it. So, nothing special about that in general. In this particular case, I could possibly imagine the following rationale behind taxing it (i.e. the ball):

a) the ball gained its value when this basketball fellow made his homerun with it and

b) it was given to the fan as a gift _after_ it attained its value.

Hence, the fan might have got a gift half a million worth and it might be taxable as income. It's not a totally remote possibility IMO.

Cheers,
A.


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## rkipperman (Mar 19, 2006)

Albert said:


> Gentlemen,
> 
> At least in Europe, it is not uncommon for people to be forced to sell their heirloom in order to pay the inheritance taxes on it. So, nothing special about that in general. In this particular case, I could possibly imagine the following rationale behind taxing it (i.e. the ball):
> 
> ...


In the US, the recipient of a gift does not pay tax. If a gift is taxed, it is taxed to the donor.


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## Albert (Feb 15, 2006)

rkipperman said:


> In the US, the recipient of a gift does not pay tax. If a gift is taxed, it is taxed to the donor.


Interesting construction! To be honest, I have no idea how gifts are treated under e.g. German tax law. Knowing our current government and political climate, I could imagine that both donor, recipient and their extended families are taxed. And his nanny.


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## narticus (Aug 24, 2006)

Albert said:


> Knowing our current government and political climate, I could imagine that both donor, recipient and their extended families are taxed. And his nanny.


I thought your current government was the nanny.


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## Albert (Feb 15, 2006)

narticus said:


> I thought your current government was the nanny.


I would rather say it's the Affenpinscher of neurotic middle-class socialism.


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## agnash (Jul 24, 2006)

rkipperman said:


> Is that a degree in accounting or tax?


Masters of accounting with a concentration in taxation.


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## agnash (Jul 24, 2006)

rkipperman said:


> In the US, the recipient of a gift does not pay tax. If a gift is taxed, it is taxed to the donor.


Even when the donor is dead.


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## omairp (Aug 21, 2006)

agnash said:


> I have a masters degree in U.S. tax accounting, and I agree with guy in the WSJ article, that it could go either way.


I have a question you may be able to answer. Is there no applicable principle in the US legal system that indicates if the law is ambiguous, it would be interpreted in the favor of the weaker party? It doesn't seem fair to make the little guy pay the price because the legislation and interpretation created by the government and IRS is ambiguous here.

This guy should be writing his congressman or senator trying to get them to pass some kind of exemption for the baseball. I'm sure it it would look good a politician up for re-election if they could say they helped the little guy beat the IRS so he could keep a historical souvenir from the American past-time. If he's forced to sell it or come up with $200,000 in taxes, it sends a pretty unfair message that these historical souvenirs are only meant for rich people.


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## rkipperman (Mar 19, 2006)

omairp said:


> I have a question you may be able to answer. Is there no applicable principle in the US legal system that indicates if the law is ambiguous, it would be interpreted in the favor of the weaker party? It doesn't seem fair to make the little guy pay the price because the legislation and interpretation created by the government and IRS is ambiguous here.
> 
> This guy should be writing his congressman or senator trying to get them to pass some kind of exemption for the baseball. I'm sure it it would look good a politician up for re-election if they could say they helped the little guy beat the IRS so he could keep a historical souvenir from the American past-time. If he's forced to sell it or come up with $200,000 in taxes, it sends a pretty unfair message that these historical souvenirs are only meant for rich people.


The IRC is actually written in favor of the government. Gross income includes pretty much everything while deductions are at the grace of Congress. Therefore, if a deduction is not cleary stated, you cannot take it.

As an aside, I don't think the law is ambiguous here. There is no law that I am aware of that specifically addresses baseballs, but there is a specific law that taxes stuff that you find in the street (treasure trove).


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## omairp (Aug 21, 2006)

rkipperman said:


> The IRC is actually written in favor of the government. Gross income includes pretty much everything while *deductions are at the grace of Congress*. Therefore, if a deduction is not cleary stated, you cannot take it.


Wow, very unfair, and kinda condescending. This guy should still lawyer up and fight it. I'm starting to understand why some Americans on this forum have made such vitriolic statements about taxes. So rkipperman, what is your base of knowledge on taxes? Do you work for a taxation authority of sorts?


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## rkipperman (Mar 19, 2006)

omairp said:


> Do you work for a taxation authority of sorts?


No, not at all.


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## jackmccullough (May 10, 2006)

omairp said:


> I have a question you may be able to answer. Is there no applicable principle in the US legal system that indicates if the law is ambiguous, it would be interpreted in the favor of the weaker party?


There is no such principle for statutory construction. The paramount rule for statutory construction is to ascertain the intention of the legislature. If the language of the legislative enactment is ambiguous there are many other methods used to ascertain legislative intent. These include legislative history, as well as numerous maxims expressed in Latin, such as expressio unius exclusio alterius est, in pari materia, et cetera.


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## rkipperman (Mar 19, 2006)

jackmccullough said:


> There is no such principle for statutory construction. The paramount rule for statutory construction is to ascertain the intention of the legislature. If the language of the legislative enactment is ambiguous there are many other methods used to ascertain legislative intent. These include legislative history, as well as numerous maxims expressed in Latin, such as expressio unius exclusio alterius est, in pari materia, et cetera.


I don't think Justice Scalia would agree with you (he once said "_t is the law that governs, not the intent of the lawgiver").

See https://en.wikipedia.org/wiki/Textualism_


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## Wayfarer (Mar 19, 2006)

omairp said:


> Wow, very unfair, and kinda condescending...I'm starting to understand why some Americans on this forum have made such vitriolic statements about taxes.


What "vitriolic" statements have been made about taxation since you joined this forum? All that comes to mind are rational descriptions of the current reality. The only person I can think of painting a scenario of vitriol over taxes is...you.

I was just speaking with people back home in Essex County Ontario. It seems they are getting about a 50% "surcharge" on their water now. Thank god it's a "surcharge" and not a "tax"! :icon_smile_big:


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## agnash (Jul 24, 2006)

omairp said:


> Is there no applicable principle in the US legal system that indicates if the law is ambiguous, it would be interpreted in the favor of the weaker party?


There is something of this in our commercial code, but it doesn't apply when dealing with the IRS.


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## omairp (Aug 21, 2006)

I thought this statement sounded pretty jaded at the time. In light of this new information its sounding more and more reasonable.



Phinn said:


> What is more intrusive: (1) having a satellite take infrared photos of the top of your head, or (2) being ordered at the point of a gun to self-report all of your income and financial history to the federal government every year, and keeping only the portion of the fruit of your labor that they allow you to keep?


I don't know why you keep bringing up water taxes in Essex. I think taxing a necessity of life like that is bullsh*t too. :icon_smile: I'm just happy I live in Alberta where our taxes are the lowest in the country. I'm not for high taxes or low taxes, just fair taxes. I think taxing this ball when the guy doesn't have money for it would be unfair, and taxing a necessity of life would be unfair because that should already be covered in municipal property taxes.

---

So rkipperman, why don't you share with the group your basis of ascertaining this tax knowledge? I'm not trying to discredit you or anything, after all I'm only an accountant for a big4 firm in Canada. Agnash shared his base of knoweldge with us. I'm just trying to understand where you're coming from, because I can't remember the last time I heard someone defend the position most favorable to the government with such zeal. Are you a lawyer or CPA in public practice or a professor?


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## Wayfarer (Mar 19, 2006)

omairp said:


> I thought this statement sounded pretty jaded at the time.


Jaded? It is 100% truth. I tried to explain that to you and then you started calling me a Republican and went off about people sitting on their porches with shot guns. Even in Canada, if you just plain stop paying all your taxes and completely ignore government attempts to collect, you *will* get to do the "perp walk" at some point.

Do people like to be reminded that the ultimate card any government has to play for failure to comply is sending armed officers out to see you? No, people seem to be made very uncomfortable of that fact. Is it jaded or vitriolic to describe the reality in honest terms? I do not see how.

At least we both agree on the ball.

And you an accountant for a Big 4 firm at 23 years of age? Good work.


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## rkipperman (Mar 19, 2006)

omairp said:


> So rkipperman, why don't you share with the group your basis of ascertaining this tax knowledge? I'm not trying to discredit you or anything, after all I'm only an accountant for a big4 firm in Canada. Agnash shared his base of knoweldge with us. I'm just trying to understand where you're coming from, because I can't remember the last time I heard someone defend the position most favorable to the government with such zeal. Are you a lawyer or CPA in public practice or a professor?


I would tell you, but would then have to kill you. :icon_smile_wink:

I don't consider myself defending the government, I am merely interpreting current law. Let the chips fall where they may.


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## omairp (Aug 21, 2006)

Wayfarer said:


> And you an accountant for a Big 4 firm at 23 years of age? Good work.


Thanks. :icon_smile:


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## agnash (Jul 24, 2006)

*A wee bit off topic*



omairp said:


> after all I'm only an accountant for a big4 firm in Canada.


Which Big 4? I used to be with what my wife affectionately calls the "PublicwhoringCorporation". :icon_smile:


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## JRR (Feb 11, 2006)

rkipperman said:


> In the US, the recipient of a gift does not pay tax. If a gift is taxed, it is taxed to the donor.


If it is a GSTT transfer sometimes the transferree (recipient) pays.

https://www.pgaol.msu.edu/generation_skipping_transfer_tax.html


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