Whose tax relief plan are you for?

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Posted By: Adam

McCain?

Obama?

Mastro?

"Dear Consignor:

Many of you are suffering with significant stock losses sitting in your portfolio.

Many of you are also hesitant to sell cards and collectibles that have appreciated in value over the years due to the tax burden associated with turning them into cash.

Mastro Auctions offers you relief! You can sell your low basis items in our December auction and include these gains in a year where you experienced passive tax losses.

Call your tax expert today to find out how this would apply to your situation and call us tomorrow to include your high value collectibles in our December Premier Catalog and Legends Live auctions."

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Posted By: Robert Klevens

I am still waiting for my August Mastro consignment check.

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Posted By: Jodi Birkholm

And when I die?

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Posted By: MikeU

There is nothing passive about a tax loss.

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Posted By: Jeff Lichtman

Robert, that's what is called a tax-free loan to Mastro. That's the kind of relief they like the best.

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Posted By: Bob Casmer

I haven't seen the actual wording of Mastro's ad about the potential tax advantages of selling your appreciated collectibles through them but, they're definitely off base. From a tax standpoint, if your portfolio is way down because of the current market you have "realized" losses from your capital asset holdings. If you sell those stocks and other capital assets below your cost or other basis, you now have "recognized" losses from their sale. To be deductible on your tax return capital items must be sold and the losses must actually be "realized". Even then, if the losses result from the sale of capital items held more than one year, resulting in long term capital losses (LTCL), you can only deduct them to the extent you also have capital gains, including gains from the sale of collectibles. If your total LTCLs exceed your total capital gains, the government lets you deduct up to $3,000 of those excess LTCLs against all your other income on your tax return each year. Anything over that gets carried over to future years. So even if you do have "recognized" capital losses this year. You can wait till future years to sell your collectibles, when realized prices may be better, and still be able to offset any of those those carryover LTCLs dollar for dollar against your collectibles gains. What Mastro is making it sound like is that you have to sell your collectibles this year to take advantage of any losses you may have already recognized.

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Posted By: Jim VB

Bob,

You're getting way too deep into this.

Mastro's plan is that if you sell in their December auction, you can elect which year you want to be paid 2008 or 2009 (or presumably later years if you wanted.) You could then have the gain from the sale be offset by passive losses you may have in the chosen year.

I'm not an accountant, but my thinking is that the IRS would determine your gain was in the year of the auction not the year of the settlement. That would be in line with their current thinking on other capital gains.

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Posted By: Tom Boblitt

the Steve Forbes flat tax camp...............

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Posted By: Bob Casmer

Jim,

You are correct. The IRS would deem the gain to be in the year of the auction under a "constructive receipt" doctrine. I was just trying to point out to anyone interested that there is no absolute necessity to run out and sell your collectibles this calendar year to take advantage of losses you may have already gotten from being in the stock market.

The correct tax planning move would be to look at what collectibles you may have already sold this year at a profit (which is then taxable at a tax rate of up to 28%) and then sell off stocks or other capital assets to generate losses to offset those collectibles sales gains.

If you've already generated the deductible capital stock losses, you don't lose them if you have more losses than gains. If you think you are forced to sell your collectibles now (ie: this same year) in order to take advantage of those losses, you are mistaken. Mastro's ad makes it sound to me like they're suggesting you need to sell your collectibles now (this year) to take advantage of the tax situation. In truth, that may not be the case and, it could mean someone would sell something in a depressed market when they otherwise could have waited till conditions improved before selling. Wasn't trying to be deep....just helpful.

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Posted By: Fred C

How many people have consigned to an auction house and actually entered the money received from an auction as a gain on their tax return? I suppose if the amount is substantial it would be a no brainer to claim the income but what if it's less than $10K?

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Posted By: Jeff Lichtman

Fred, the money received from the auction house isn't income but if you sold an item for more than what you paid for it then you have a capital gain. And a capital gain is a taxable event. Of course you should probably check with an accountant on this but I think it's pretty clear.

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Posted By: Rob D.

How many people have consigned to an auction house and actually entered the money received from an auction as a gain on their tax return?

If they didn't pay tax on that capital gain, they're not very patriotic.

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Posted By: JimCrandell

Everyone! To do otherwise is against the law!

Funny Doug has publicized this--I have spoken to him about some of my cards the past two weeks and putting them in their December auction.

The only reason I would do it is to generate gains that I would not have to pay taxes on as I have such massive losses from stock sales.

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Posted By: boxingcardman

I thought they were limited to writing their press statements.

I kid Mastro. They know I love them.

I like my own tax plan: pay the taxes I owe and sleep well at night.

My August check got here today. Some of my former cards were being offered for sale on Ebay by the high bidder weeks ago. I am underwhelmed by the rapid payment.

Sic Gorgiamus Allos Subjectatos Nunc

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Posted By: bruce Dorskind

We received Mastro's e-mail blast and found the timing to be strange.

If we had important treasures we wanted to sell, this would not be the
time to sell them.

We agree with other consignors with regard to 45 day payment.

When we consign to REA we receive payment in what seems like 45 minutes.

Given the quality of the current Mastro Auction, the state of the economy,
the drop in demand for many baseball items and the cloud hanging over
many dealers (FBI) the interest on the 45 day hold would be a good source
of income

Of course 1% for 45 days hardly covers the cost of mailing a catalog.


Bruce Dorskind
America's Toughest Want List

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Posted By: Jeff Lichtman

"If we had important treasures we wanted to sell, this would not be the
time to sell them."

Well, maybe for you -- but for Mastro I think it would be a perfect time to sell your cards.

As for the small amount of interest made by Mastro over 45 days, how about projected over $5 milliion in monies held back?

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Posted By: bruce Dorskind

Jeff

While there is a no reason to hold back $5m, the interest earned
on that money is relatively small in the scope of things

If Mastro earns 2% per annum on the money that's $100,000 per year
for 45 days they would earn less than $20,000- well less than a month's
salary for their most senior executives.

If the 45 day policy costs them a total 4 collections with a value of $500,000
the opportunity cost to them is at least $100,000

From a pure economic standout, at least from our vantage point, the 45
day hold policy does not make sense.


Bruce Dorskind
America's Toughest Want List

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Posted By: MikeU

"they would earn less than $20,000- well less than a month's
salary for their most senior executives."

However, it does pay for a years worth of Mastro Packing tape.

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Posted By: Jeff Lichtman

Bruce, I agree -- which makes it even more ridiculous that they hold back on sending out checks.

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Posted By: CoreyRS.hanus

"The IRS would deem the gain to be in the year of the auction under a "constructive receipt" doctrine."

I am not a tax accountant so this point is meant to be a question, not a statement. Inasmuch as there exists a legitimate economic risk an underbidder will renege and therefore the item might not sell, couldn't one reasonably argue the sale should not be deemed to have taken place for purposes of capital gains until the consignor has been paid. Much the same way in real estate--isn't the sale deemed to have occured when the closing took place, not when the contract was signed? So going back to the auction scenario, on the date the auction closed all that was established was a promise to pay, which for tax purposes is not enough to trigger the gain being realized on that date.

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Posted By: Jim VB

Corey,

Way out of my league to determine how the IRS would rule, but you might be able to win any individual case with that argument. But I bet they would treat that as an exception to the rule.

My first reaction was that they would frown on Mastro making this offer as they did, but as I think about it more, many companies offer the option of selecting which year you collect a bonus in, and many tax advisors suggest making a mortgage payment or property tax payment early, for exactly the same reason.

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Posted By: Rick McQuillan

It's a tough choice. If I'm not mistaken, Obama will only tax baseball cards that are worth over $250,000 and McCain is giving everyone a $5,000 tax credit for baseball card purchases.

Sounds good!

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Posted By: B.C.Daniels

senior execs earn over 20k per month!

Jim C- YOU lost money in the stock market!!!!!
You must not have tithed all year!

BcD

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Posted By: Bob Casmer

Corey,

Virtually every individual in the U.S. is considered a "cash basis" taxpayer by the IRS. That means they recognize income/expense when they actually pay/receive the money behind the transaction. Under the "constructive receipt" doctrine you don't really get the option of deciding in which tax period you get to report a transaction. What I mean by this is that if you sell something through Mastro in December 2008, and they get and hold the money till they send it to you in say January 2009, the following year, you technically are still required to report any gain on the sale in 2008. In this instance you have technically hired Mastro to act as your agent in the completion of this transaction. Therefore, if they have received the money from the auction in December, on your behalf, it is as though you yourself constructively received it in December also. Same would hold true for individuals selling on Ebay that use Paypal. Paypal is really only acting as an agent on behalf of the buyer and seller in the transaction. If you sell something, the payment is "constructively received" by you when it hits your Paypal account, even though you haven't actually removed the money from Paypal and deposited it into your own personal account yet. In both instances, whether it is through Mastro or Paypal, you as the seller are fully entitled to the funds acquired and held on your behalf by either entity. You can't elect to defer recognizing income on those transactions by telling Mastro to hold the cash for you till the following year or by leaving your money with Paypal till you decide to transfer it to your personal account in a different tax period. Oh, and if you say that per Mastro's terms they have the right to hold your cash up to 45 days before releasing it to you and therefore you can't get it till then, that argument doesn't hold water. As your agent, you and they can come to any agreement you want on how they handle and ultimately transfer the cash to you. The holding period is considered nothing more than a convenience petween the parties. You as the seller could have just as easily decided to go with a different auction house that had different terms, cut a different deal with Mastro, sold the item yourself, whatever. The IRS considers it the same as you just telling Mastro to hold your cash.

You could possibly even work a deal with an auction house where they would give you an advance on the item they're selling for you. I believe this has happened on occasion, correct? So, does that mean that for tax purposes you have to recognize gain from when the auction house gives you that up front money? NO, it is just an agreement between the seller and their agent on how they're going to handle their relationship for this particular transaction. The advance money would be considered a loan, not potential taxable gain. A taxable event wouldn't occur until the sale and payment for the item to a bona fide, third-party buyer. Mastro receives the money, offsets the loan advance against the seller's share of the auction sale proceeds, and remits what is remaining and due to the seller.

In Corey's reference to a real estate transaction, he's right that the parties usually sign a sales contract. However, what is the difference between your signing a real estate sales contract and winning an Ebay auction? As Ebay has always claimed, your bid and win of an auction is deemed a valid contract, just like a real estate sales contract, right? Most real estate sales contracts I've seen also have contingency agreements built in requiring specific performance and actions by the parties before the contract is considerd perfected. The tax triggering event in a real estate transaction is usually postponed till the "closing", when all the accompanying documents and forms are signed, monies paid, loan documents executed, etc. The signing of the real estate sales agreement is kind of like making a high bid on an Ebay auction that hasn't ended yet. You've entered into a binding contract but, the final deal hasn't been closed yet. The contingency is that someone can outbid you. Also, real estate deals often require a down payment. These monies may even be non-refundable but, until the "closing" and compliance with all contingent aspects of the real estate contract, the seller wouldn't recognize any potential income on the deal until the "closing" date and the resolution and execution of all documents and contingencies, even though he/she had previously received monies from a down payment.

With an ended Ebay sale/auction, or even an auction house sale, there aren't usually contingencies. (Though there is an implied understanding that the goods/items to be received are authentic and as described, but that is for a different argument.) The buyer sends payment and the seller delivers the goods/items. Assuming the sellers and buyers are individuals on the "cash Basis", the tax triggering event would be when the cash is received by the seller (or his/her agent).

These kinds of issues may not seem that important now but, look at the recent activity by the IRS now requiring credit card companies and others, including Paypal, to begin reporting transaction activity to the IRS. I think most people have felt that selling through Ebay was akin to holding a garage sale or selling at a flea market. No tax authority really seemed to care and sellers weren't required to keep track of any specific records, mostly on the assumption their sales were considered casual and/or de minimis. If I understand the rule correctly, Paypal will now have to report to the government anyone receiving at least $20,000 and having 200 or more transactions in a calendar year. While that probably doesn't effect most people reading this, once they have that reporting requirement in place, its real easy to just say to give them all the data on everyone selling through Ebay/Paypal down the road, wouldn't you agree. As the economy and everything else seems to be headed south, all levels of government are trying to get more dollars to work with while at the same time not voting to raise taxes. Therefore, from a political standpoint, the best thing to do for a politician is to agree to more strictly enforce tax laws already in place to effectively collect those dollars that are deemed to be slipping through government hands, at all levels, federal, state and local. Ebay, and other online auction/sales venues have been operating for some time with little, if any, interference and oversight by government taxing authorities. This is part of a so-called "underground economy" that the government recognizes as operating virtually tax-free. As soon as the politicians can all agree on how best to go after this, they will. Luckily for most of us, politicians can't seem to agree an anything without each participant getting something for themselves or their specific constituents.

Having said that, and with the advent of ongoing government inquiry into sellers like Mastro, it doesn't take much of a leap to see the government digging into who sellers and buyers are in these higher level auction houses and to start requiring more and stricter reporting of any sales/purchase activity and particulars of the participants in those transactions to the applicable taxing authorities.

Just food for thought for everyone.

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Posted By: leon

Nice analysis....thanks for posting.