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Resident Bob Shapiro has written a Town Meeting warrant article asking voters to give selectmen the authority to pay employees and contractors in American Silver Eagle dollar coins.

For some, American Silver Eagle dollar coins are a wise investment, as every $1 face-value silver coin is worth $35. Now Andover resident Bob Shapiro believes the town should use the coins to help pay interested employees and contractors.

He'll ask voters at April Town Meeting to allow the town to do so — saying it will help both workers and taxpayers.

"The federal tax code offers definite benefits to using silver dollars for transactions, rather than paper dollars, both for the town and for employees and contractors. This benefit might amount to a 4- to 5-percent increase in purchasing power value to employees and contractors who choose to receive a portion of payments in silver dollars," Shapiro wrote in an explanation. "The benefit to the town, given a 25 percent participation rate, might be approximately $1 million."

Shapiro, a Haggetts Pond Road resident and author of the article, said he became interested in the value of precious metals from a book his dad gave him in the 1970s that discussed "the coming downheaval" of American currency values.

"It became obvious to me that the dollar would go through its ups and downs, and return to its intrinsic value, which is zero," said Shapiro. "I saw that precious metals were already beginning their up-swing. I have been interested in returning the U.S. to a precious metal standard."

The proposal, he said, "is so far outside the box that it is probably outside the warehouse."

As the article is written, employees and town-hired contractors should be offered "the option of receiving a portion of their payments in the form of equal purchasing power amounts of $1 American Silver Eagle Coins or equivalents."

In his description of the proposal, he adds, "Both of these forms (paper and silver dollars) bear the imprint of the US government as being $1; both forms have been validated by US federal law as being 'legal tender.' However, their purchasing powers are not equal."

SIMILAR PROCESS SLAMMED BY IRS

Shapiro believes employees would support the move because they could pay less tax. The federal government often recognizes these dollar coins by their face value of $1, not their intrinsic value of around $35, he argues. By that reasoning, Shapiro said, an employee can be given $35 in paper currency and $35 in equivalent purchasing power of Silver Eagles — one coin — totaling $70 in overall income. While the employee would need to pay a percentage of that $70 income back in taxes, that percentage would be based only on the face value of the currency — $36.

A similar practice was used almost a decade ago by a business owner in Las Vegas named Robert Kahre. According to stories published by the Las Vegas Review-Journal in 2007 and 2009, Kahre paid employees in gold and silver coins. Employees who reported their incomes based on the face value of the coins — which included $50 gold coins — found themselves below the income threshold for filing federal tax returns, the Review-Journal wrote.

The coins later were exchanged for pre-determined envelopes of cash, according to the IRS website. The payroll scheme "concealed and disguised the true amount of income received by his [Kahre's] employees and the employees of the companies for which he provided payroll services. The face amount of the coins was one-eighth the amount of pay that the employee actually earned and received in the cash envelope."

After a four-year battle that ended in 2007, several employees of Kahre's businesses were not convicted on any of the 161 charges they faced.

Months later, the IRS noted in a Jan. 28, 2008 bulletin that claiming "the value of the coins is excluded from income," or claiming that "the amount realized in the transaction is the face value of the coins and not their fairmarket value for purposes of determining taxable income" is considered fraudulent activity.

A year and a half later, Kahre was sentenced to 15 years in prison and ordered to pay $16 million in restitution after being found guilty on 57 felony counts of evading taxes, failing to withhold taxes from workers' wages, and engaging in fraud during real estate transactions, according to the Review-Journal.

A 2011 notice on the IRS website providing examples of tax fraud investigations highlights Kahre's case, saying Kahre and his sister Lori Kahre, who was sentenced to six years in prison and ordered to pay $32,000 in restitution for her role, were both "found guilty in August 2009 of conspiring to defraud the federal government for the purpose of impeding the Internal Revenue Service (IRS) in its collection of income and employment taxes."

SHAPIRO: WORKABLE

A IRS spokeswoman researching the legality of Shapiro's warrant article was not able to respond to the Townsman on deadline.

When presented with the details of the Kahre case, Shapiro said congressional law ultimately determines what is required.

"If it's in conflict with a law passed by Congress, the higher law wins, which is the Congressional law," said Shapiro. "The IRS will make life miserable for private citizens. But Andover being a government, Andover is less likely to have to put up with the IRS's frivolous persecution."

The easiest way for the town to adopt the proposed system for paying employees is to develop a partnership with either a nearby bank or business that would take a "silver check" and convert it into a specific number of coins, much like cashing a traditional check at a bank.

The program would also be voluntary for both the town, as the article seeks only to authorize the Board of Selectmen to make the change, and the employees, who may elect to receive a portion of their pay in coin purchasing power, said Shapiro.

OFFICIAL: 'IMPOSSIBLE'

Robert Bliss, communications director for the state's Department of Revenue, says the idea won't work because the federal government recognizes the true value of payments at the time they are received.

"The way you pay your state taxes flows off your federal return," said Bliss. "If you were going to be paid in this manner - or you were paid in bubble gum or trading cards - this is why it would be impossible to work: it would be valued at what it was [worth] when you received it.

"You've got to report your income based on the value of what you've been given," said Bliss.

Town Manager Buzz Stapczynski said he is skeptical of the idea, which would also complicate the town's payroll system. "A huge number of our employees are on direct deposit," said Stapczynski. "It sounds novel. I'm a little reluctant to do something as novel as this. I would rather follow a design from other communities that have fought the battle. Until then, I'm very skeptical."

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For feedback please email dluca@andovertownsman.com.

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