Bankrupt Digicash Made $481K in 1999

[Greg Broiles]

At 12:12 PM 8/20/2002 -0700, Steve Schear wrote:
>At 12:33 PM 8/20/2002 -0700, you wrote:
>>Digicash 1999 IRS forms:
>>
>>   http://cryptome.org/digicash-481k.htm
>
>Perhaps its my ignorance, but doesn't this form merely mean DC paid the 
>Chaum Family Trust $481K, not  that the company made $481K?

(since the PKI market's been in the toilet, I've been learning about taxation)

Even that assumes too much - there wasn't necessarily a transfer of money. 
If, for example (and this is purely hypothetical), Chaum had agreed to work 
for DC in exchange for 1,000,000 shares of stock, and $481K was the fair 
market value of those shares, then it would be proper to issue a 1099-MISC 
with that amount in Box 3 and Chaum would be taxed on that $481K as income, 
even though he received it as stock instead of cash.

(If the circumstances were different, the income might be expected to show 
up in Box 7, "nonemployee compensation"; but here it's in Box 3, which 
should transfer directly either to Line 21 on the 1040 for miscellaneous 
income, or onto a Schedule C, assuming it's an individual taxpayer, which 
isn't the case here.)

This sort of 1099 is also what you'd expect to see going to the recipient 
of cash as damages following or related to a lawsuit.

If Digicash loaned money to Chaum and later forgave the debt (not unusual, 
where a founder or other important employee wants to exercise stock options 
early but doesn't have cash for the exercise), Chaum would be obligated to 
report the forgiven debt as income but a 1099 would not be required; that 
doesn't stop people from sending them anyway.


--
Greg Broiles -- gbroiles at parrhesia.com -- PGP 0x26E4488c or 0x94245961