When Doing a Trade

BobC · #1 12-27-2021, 05:46 PM

Quote:

Originally Posted by Exhibitman

Bob, How do you value items that are unique or that have few known examples that haven't sold in a long time? I certainly can't rely on a single 2011 sale as a comparable. So I analogize to similar cards, but there is always that unknowable variable that only an auction result can establish. Case in point: someone recently tried to work with me on a rare card I had, but no matter what we tried we simply could not agree on a base value because the card never sells. I had a list of cards I thought were comparable but he disagreed. Ultimately, I was pleased to keep the card.

Adam,

You've hit on another huge obstacle when trying to report trades for tax purposes, what is something you got in trade actually worth? A huge part of the pain in the butt you sometimes have to deal with, and another big reason why most people don't report trades on their tax returns. There is no definitive answer in the tax code for this specific question/issue either.

In looking at other tax areas involving estimated FMV for possible guidance, if you donate property (clothing furniture, etc.) with no recognized FMV to charity, you would estimate and include that supposed FMV on your tax return for charitable deduction purposes. However, if for any single item you donate you claim a FMV of $5,000 or more, your are required to obtain a formal appraisal of the item being donated, in writing, by a qualified and licensed appraiser, or risk having the amount of your charitable contribution thrown out, or at least revised downward, by the IRS. This might be a reasonable way to determine what to do if reporting FMV of a card you trade for. If under $5,000, do your best guesstimate as to the FMV, and keep your notes and any evidence you used to come up with that FMV as part of your tax records. But for something worth over $5,000, you definitely try to get as much written corroborative evidence as possible, and maybe even try to find a third party appraiser, or other known "expert" in regards to card values, to offer up some written report to further substantiate your reported value.

Bottom line is, if your tax return included a trade transaction, the IRS would first have to pull your return for examination and audit before you'd need to provide them with anything. And the percentage of tax returns being audited annually is extremely small in recent years. Secondly, if you are unlucky enough to have your tax return pulled for audit, chances are the IRS agent you get assigned will likely know nothing about cards and their values, and they probably won't want to learn anything about them and bother with it either. So in all likelihood, if you can intelligently argue and show you made a reasonable estimate of a card's FMV, the agent will probably just sign off on whatever value you used on your return. Of course, you could also get assigned a real gung-ho agent who makes you go a lot farther to prove your estimate is correct, and thus the reason to compile and gather as much evidence as you can at the time you prepare your tax return, and retain it in case it becomes needed in future years.

Answers to tax questions aren't always simple black or white answers, but are very often multiple shades of gray.

Eric72 · #2 12-27-2021, 09:47 PM

Quote:

Originally Posted by BobC

...if you are unlucky enough to have your tax return pulled for audit...

I've heard of the IRS auditing somebody's books. I never thought it might be their 3-ring binders.

isiahfan · #3 12-28-2021, 01:23 AM

As a CPA...who actually also worked at the KPMG office in Cleveland...of all places...I would like to say Bob is going a bit overboard. While technically right...if everyone reported every gain/loss on every transaction...well you get the point.

A lot of people on here are only pre-war...which limits trading in large groups...but I remember a group in the late 90s where you had a basic trading philosophy....you listed what you would "accept"...i.e. any Wade Boggs cards with a BV$ of over $5...any Topps Yaz base cards...etc. You would then see what others in the group requested....i.e. any 1968 Topps card in ExMt or better condition and you would send in what you had that met other's needs until you had at least $100 in trading credit. The person running the trades took 10% off of the top to compensate their efforts...(fair enough IMO) so you would need to submit $110 to get back $100. The coordinator would then facilitate and ship on their dime as part of the 10%. So if you collected Stan the Man...and someone else collected Kaline...it was easy enough. People could get rid of extras while giving up 10% to get something they wanted. Not like you guys are talking about PSA 3 and a PSA 3 (sane card) where eye appeal makes a $300 difference. I 100% agree with you guys...but man the simple fix is...here is what I collect.... here is what I have...is much easier when your wants/needs are not sooooooooo specific. I would love if Net54 had such a trade center...but I know it's a lot of work.

BobC · #4 12-28-2021, 03:59 AM

Quote:

Originally Posted by isiahfan

As a CPA...who actually also worked at the KPMG office in Cleveland...of all places...I would like to say Bob is going a bit overboard. While technically right...if everyone reported every gain/loss on every transaction...well you get the point.

A lot of people on here are only pre-war...which limits trading in large groups...but I remember a group in the late 90s where you had a basic trading philosophy....you listed what you would "accept"...i.e. any Wade Boggs cards with a BV$ of over $5...any Topps Yaz base cards...etc. You would then see what others in the group requested....i.e. any 1968 Topps card in ExMt or better condition and you would send in what you had that met other's needs until you had at least $100 in trading credit. The person running the trades took 10% off of the top to compensate their efforts...(fair enough IMO) so you would need to submit $110 to get back $100. The coordinator would then facilitate and ship on their dime as part of the 10%. So if you collected Stan the Man...and someone else collected Kaline...it was easy enough. People could get rid of extras while giving up 10% to get something they wanted. Not like you guys are talking about PSA 3 and a PSA 3 (sane card) where eye appeal makes a $300 difference. I 100% agree with you guys...but man the simple fix is...here is what I collect.... here is what I have...is much easier when your wants/needs are not sooooooooo specific. I would love if Net54 had such a trade center...but I know it's a lot of work.

Hey Isiahfan, when were you working at the Cleveland KPMG office? It was definitely long after I had been there it sounds like. I wonder if anyone I had worked with was still there when you were, let me know when you were there.

Anyway, I had mentioned in an earlier post that no one is likely going to go ahead and report all these trades and such as taxable sales. I was merely pointing out how whether they want to believe it or not, that is what they are supposed to be doing. The IRS really doesn't want to mess with this kind of stuff either, but I've always found it a good idea to educate people so they at least know what they're supposed to be doing. Then they can decide how they want to handle it themselves, or if they just ignore it because they figure the odds are the IRS will never find out and come calling.

And if people are aware of what they should have been doing all along, even if they didn't do it, should the IRS ever come knocking on their door, they may be able to better handle the situation and at least not inadvertently say or do something to make things worse.

And thank you for confirming to everyone that what I was saying is true. But you can drop the "technically" part, because what I said is just plain true and not overboard at all. It is just an area of tax law that most people either ignore, because they feel the chances of the IRS ever coming after them are virtually nil, or they simply didn't know about it. And it can especially make a bigger difference to someone who is a dealer. I know Adam (Exhibitman), who I was specifically responding to in a couple earlier posts, talked about setting up at shows and doing trades from sales inventory. So I was also going into a little more detail so he could maybe better see and understand the kind of tax reporting issues and liability he might also have as a dealer doing trades. This way, he at least knows what he is supposed to be doing, and can then better decide how he wants to handle and report such trading transactions for himself, going forward.

I'm not sure how trying to show factual information like this to people who may not have otherwise known, or fully understood, what they needed or were supposed to do tax-wise in regards to a trade or barter transaction could ever be considered as going "overboard". Especially in light of the reality of how cards prices have been surging of late. Nowadays, you are just as likely to see people discussing trades for cards worth thousands of dollars as you are to see a couple collecting buddies swapping $20 cards. In fact, it may be more likely for the cards worth thousands. And the larger the dollar values involved in such card swaps, the more likely the IRS would take interest in finding out about it. Just look at some of the offers and cards people are looking to trade that are showing up in the BST threads these days.

BobC · #5 12-28-2021, 01:59 AM

Quote:

Originally Posted by Eric72

I've heard of the IRS auditing somebody's books. I never thought it might be their 3-ring binders.

Don't laugh, you'd be surprised what they might come and look at......and audit.

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