here's a puzzle for you

maybe.

Taxpayer orders online from Home Depot web site 4 patio chairs, table and umbrella. Orders are shipped via common carrier with no shipping charge. Seller maintains 1 800 number for customer contact; no email. Chairs cost 55$ apiece plus tax, but we'll ignore the sales tax. Shipment arrives, direct from factory. Instead of 4 chairs, factory ships 4 "units", i.e. 2 chairs to a box. Repeated attempts to contact Home Depot via 1800 number comes to naught since lines are always overloaded. when a human (probably a supervisor trying to take care of some overload) is contacted, his reaction is that customer has probably obtained four free chairs! He is put on notice of course of the error and the ball is in Home Depot's court. No further contact after six weeks. Now, here's the tax part. How would you vote?

A. customer taxpayer has 4 free chairs, zero basis, and therefore a gift; no tax consequences. B. Customers has income to the tune of 220$, taxable.

C. customer sells chairs for 55 apiece; with basis already taxed, zero profit. D. customer sells chairs and therefore has 55 apiece income. E. (any other possibility?

have fun.

ChEAr$, Harlan Lunsford, EA n LA Thursday June 15th 2006

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Reply to
Harlan Lunsford
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Many states have consumer protection laws that say unordered merchandise that is delivered is a gift. So I'd vote for A. On the other hand I don't think that prevents the supplier from deducting the cost of those goods as an ordinary business expense, though one could argue that it would.

I suppose you could argue that the basis would be the price of four chairs divided by eight. But if we're treating the chairs as gifts, the recipient would have the basis of the donor, which would be, I think, the wholesale price. Stu

Reply to
Stuart A. Bronstein

On the grounds that he notified them of the error, and they said "keep the chairs." They essentially gave him a discount on his purchase because it wasn't worth their time to figure out how to get the chairs back. Phoebe :)

Reply to
Phoebe Roberts, EA
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Reply to
Seth Breidbart
[...]
[...]

I vote for a basis of $27.50 per chair assuming the chairs are fungible...

Dan Lanciani ddl@danlan.*com

Reply to
Dan Lanciani

I'd say E. Customer has 8 chairs for which he paid $27.50 each. If he sells a chair he has a gain to the extent the selling price (not likely to be $55) exceeds $27.50. If he had bought the chairs on a 2-for-1 sale, would he have $220 of gain? If I buy a dozen donuts for $1.20 and the baker throws in a 13th for lagniappe, do I have income? Of course not. Katie in San Diego

Reply to
Katie

E. (any other possibility?)

Customer has 8 chairs for $220 or a cost basis of 27.50 each. If customer sells 4 chairs for $55 each, customer has taxable income of $110. Ira Smilovitz

Reply to
Ira Smilovitz

But this isn't exactly the same. In those cases the "additional" goods are part of the bargain. if you bought one item but snuck out of the store with two, you do have income. I think it's more similar to that case. That said, it wasn't theft because the OP didn't do it on purpose, and the store, having been offered the chairs back, didn't accept them. So I suppose you could call it cancellation of indebtedness income - he didn't owe them money for the chairs, but he owed them the chairs back. But they decided to forgive the debt. Stu

Reply to
Stuart Bronstein

If they are fungible, I'd wash them with a mild bleach solution and set them out in the sun for a couple of hours.

-- Don EA in Upstate NY

Reply to
Don Priebe

I would consider that the store ran an unadvertised 2-for-1 sale.

Seth

Reply to
Seth Breidbart

A mushroom goes into a bar and asks a lady for a date.

She asks, Why would I want a date with you?

He says, Because I'm a Fun Guy.

__ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

=========Moderator: I didn't get the joke or the connection.

Reply to
Arthur Kamlet

He offered to return the chairs, and the seller declined to take them back. I still say he bought 8 chairs for $27.50 each. There was never a debt for the four extra chairs, therefore there is no COD income. Katie in San Diego

Reply to
Katie

A similar situation: a vendor offered "buy 4, get 1 free". I bought 12; he shipped 17 with a note saying "you're a good customer". Is that pre-cancellation of debt or a price discount? It seems obvious to me it's the latter. Suppose he hadn't included the note, but told me that when I questioned the quantity shipped? Same thing, I believe. Seth

Reply to
Seth Breidbart

The on-line merchant has now successfully created nexus for itself in the state where the customer lives since they are warehousing their inventory at the customer's home (unless one could return the merchandise to their bricks and mortar store, in which case they already have nexus). It is now not protected by P.L. 86-272 and must pay massive income taxes to the state since the state uses a 100% weighted sales factor for apportioning income and adds back all intercompany interest and intangible expenses to income. So much for just losing $220 on this transaction. Probably not likely, but I wouldn't put it past the state for trying. JMc

Reply to
JMc

Fun Guy. Fungi. Fungible.

It's a stretch, I know

Katie

Reply to
Katie

He has 8 chairs with a basis of $220, but the allocation is a bit fuzzy. I'd claim that the first $220 received is a return of capital. When the other chairs are disposed (say, in three years), they are a capital gain because this is a capital asset. He could claim that the four chairs he bought each have a basis of $55 each and the other four chairs have a basis of zero. Sell the ones with a $55 basis and keep the ones with zero basis until their basis=value. Remember - Your tax return is merely your opening offer.

Reply to
NadCixelsyd

Don't you mean you could have donated the Practice section? You _wanted_ the Theory section. In any case, I wouldn't consider the basis zero; if the list prices for the two were the same, I'd consider you got each of them for half price (lucky you); if different, I'd allocate the cost proportional to the list. After all, how do you thinks the IRS would react if you donated the side with the full basis and kept the free one? Seth

Reply to
Seth Breidbart

They're identical, they were all purchased in a single transaction. That doesn't seem fuzzy to me.

Seth

Reply to
Seth Breidbart

no, only 4 were purchased. the others were "found", like pirate treasure.

I don't understand all the fuss - return 4 to the store (the ones with the non-zero basis), and keep the four that have a basis of zero.

Or, even better, buy four more from the store, and see if you can pick up another eight.

Reply to
Gil Favor

Why the allocating? Individuals don't allocate! A business would put the chairs into inventory debiting inventory and crediting their payment method.

It's not fuzzy. It's the logic or lack of that's fuzzy.

It's treasure trove? Wow - I am really excited. Let's see: Isn't treasure trove taxable income. Tell your client he has to pay taxes on the exta chairs at full price??? Good way to get rid of a client!

Logical, but not ethical.

Cleverest response to date!

Reply to
Anonymous

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