Macks the Knife
Five thousand years ago, give or take, the Mesopotamians invented the shekel. It was the world’s first currency and represented a huge step forward from primitive barter, the direct trade of goods and services. Since then, ingenious humans have used all sorts of objects to store and exchange value, including beaver skins, tea bricks, cowrie shells, and those 12-foot stone disks they use on the Micronesian island of Yap.
Today, a new generation of financial innovators is working to displace the dollars, pounds, pesos, euros, rubles, and yuan that most of us think of as money. Cryptocurrency bulls promise a brave new world of decentralized money free from government control. Crypto bears remind us that you can’t spell “crypto” without “cry.” Maybe both sides are winning: the SEC has just approved the first crypto-based exchange-traded fund even as the DOJ continues indicting the biggest names in the market. That includes Sam Bankman-Fried, founder of the FTX crypto exchange.
Eighteen months ago, you had probably never heard of SBF. At one point, he was worth a nominal $25 billion. Today, he’s the poster man-child for hubris and financial arrogance. He abused his customers’ trust and found himself in Brooklyn’s Metropolitan Detention Center, the federal jail where Epstein didn’t kill himself. He abused his bail and wound up back in that same jail three months before his trial. His insistence on taking the stand at that trial helped cement his conviction—it took the jury barely four hours to return with a verdict of, “So guilty it hurts, why do you even need to ask?” On March 28, he’ll be sentenced to up to 110 years in a place where there’s no currency at all.
But that doesn’t mean SBF can’t still trade and even rack up tax bills as he works to regain his billions. Microeconomies can exist anywhere that people who can’t use money can find something else to exchange for goods and services. In jail, that used to be cigarettes. However, federal prisons went smoke-free in 2004.
Today, the currency of choice is canned mackerels, or “macks,” which cost roughly a dollar each at the commissary. Prisoners can buy up to 14 cans per week and exchange them for all sorts of services, including haircuts, shoeshines, and legal services from jailhouse lawyers. Unlike other commissary staples like summer sausages, Velveeta, and candy, few prisoners actually eat the fish, which makes them a good successor to cigarettes. The Wall Street Journal reported that SBF traded four macks for a haircut before his trial.
Here’s the tax angle. Services inmates perform for each other are taxable, at fair market value, just as if they had gotten paid in cash. That barter income gets added to the income they earn from prison work assignments. Hourly wages typically range from 12 to 40 cents for in-house jobs like laundry, landscaping, and food service. However, they can climb as high as a whopping $1.15 for jobs with Federal Prison Industries (FPI), a government-owned corporation that sells market-priced services and quality goods made by inmates.
Of course, federal prisoners as a group don’t have a great reputation for following the rules. So we’re willing to bet that not a lot of macks make their way into Form 1040. Most prisoners aren’t required to file tax returns anyway, simply because their incomes aren’t high enough.
But, this week’s story reminds us yet again how deep taxes are embedded in every financial decision we make. That’s why planning is so important, so you can make the right decision to owe the least possible tax. That’s what we do best. It’s just too bad you can’t pay us in macks.