Barter income

Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
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Re: Barter income

Postby Harvester » Thu Jun 03, 2010 7:50 pm

Imalawman wrote:.. but barter systems are hard in the US, only because the IRC doesn't tax a transaction based upon the exchanged FMV. Rather it taxes the value received less the basis in the item given up. If you exchange something which has FMV equal to its tax basis, then it is not a taxable transaction.


Yes, which makes the gain hard to track and calculate. Which would appear to make barter transactions more attractive than FRN transactions, as the IRS would likely assume the FRNs received as FMV (fair market value) and therefore gross income. The IRC deals with income, not necessarily transaction value. Isn't it likely the FMV minus basis is used to define barter income as the Revenue Acts tax "gains, profit, and income derived from [pay] .." ?

And when you really examine everything, not every barter transaction generates income, not because income equals FMV minus basis, but because not every gain is excisable; not every gain involves privileged activity.

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Re: Barter income

Postby jg » Fri Jun 04, 2010 1:32 am

Harvester wrote:...And when you really examine everything, not every barter transaction generates income, not because income equals FMV minus basis, but because not every gain is excisable; not every gain involves privileged activity.
...

Exactly what (or when) is a gain that is "excisable"? What is "excisable"?

Exactly what (or when) is a gain that "involves privileged activity"? What is "privileged activity"?

I am not able to find either of those terms in Title 26 or in court cases regarding income taxes. Perhaps these are invented concepts that have no basis in the law (aka frivolous)?
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Re: Barter income

Postby Arthur Rubin » Fri Jun 04, 2010 6:16 am

As the originator of this thread, may I request that Harvester go elsewhere? I was interested in the court-determined law in Australia and in the US.
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Re: Barter income

Postby wserra » Fri Jun 04, 2010 11:27 am

Arthur Rubin wrote:As the originator of this thread, may I request that Harvester go elsewhere?


God tried that once. It didn't work.

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Re: Barter income

Postby Mr. Mephistopheles » Fri Jun 04, 2010 9:58 pm

On the subject of bartering:

`Banks' allow members to pay with time, not cash
By MICHAEL RUBINKAM, Associated Press Writer Michael Rubinkam, Associated Press Writer Thu Jun 3, 5:48 am ET

ALLENTOWN, Pa. – No money? No problem! Pay with time, instead.

That's what Maria Villacreses did when the economy put a hitch in her wedding plans: She used "time dollars" on everything from a wedding-day makeover to an elaborate seven-layer cake.

In a modern twist on the ancient practice of barter, people like Villacreses are joining time banks to help them get the things they need or want without having to spend cash.

In a time bank, members get credit for services they provide to other members, from cooking to housekeeping to car rides to home repair. For each hour of work, one time dollar is deposited into a member's account, good for services offered by other members.

Scores of time banks are being started in hard-hit communities around the nation — and thousands of devotees are helping each other survive tough financial times.

"Even though we were planning to do something small and simple, it takes a lot of money, time and effort. Through time banking, I got a lot of help," said Villacreses, who belongs to Community Exchange, a 10-year-old time bank in Allentown, where 500 members offer everything from electrical work to tai chi.

As the economy recovers amid stubbornly high unemployment, newer banks with names like "Back On Track" have joined Community Exchange in offering an alternative to cash. Time Banks USA, an advocacy group in Washington, says interest in time banking has surged: About 115 now operate nationwide, with 100 more in early stages of development. Membership fluctuates but is believed to total more than 15,000.

"People see time banking as a way to deal with the economic pressures they are feeling," especially in places hit hardest by the recession, said Jen Moore, membership and outreach coordinator for Time Banks USA.

In Maine, where paper mills and shoe manufacturers have closed, time dollars buy everything from guitar lessons to yard work — even prayer. In California, they buy haircuts, tax help and aromatherapy. In Michigan, child care, plumbing and yoga.

In South Carolina, Back on Track Charleston was launched recently to help down-on-their-luck residents get, well, back on track. It's already got 80 members.

Winborne Evans relies on Back on Track to supply her with baby-sitting while she picks up extra shifts as a waitress. She's also using time dollars, which she earns by sitting for other members' kids, to help get her fledgling beekeeping business off the ground.

"Becoming a single mom recently ... I truly can't imagine where I would be without it, mostly because I can't afford a baby-sitter, and I can't afford to pay people to help me with my bees," said Evans, 29.

Unlike bartering, transactions in time banking are not usually reciprocal. Instead, Jane baby-sits for John, John fixes Mary's leaky faucet, Mary drives Tom to the doctor's office, and so on, all of them earning and spending time dollars. Their labor is valued equally: One hour is always worth one time dollar. (Time dollars are not taxable, according to Time Banks USA.)

People often join for economic reasons but wind up getting more out of it. Among the benefits: networking, getting to know neighbors, building a sense of community and keeping skills sharp.

"Part of it is very practical," said Judith Lasker, a professor at Lehigh University in Bethlehem who is co-writing a book on time banking. "There's another part of it that's very ideological. People believe the best way to survive in this crazy, unpredictable world is to forge local ties, support local economies ... and support local people in a variety of ways."

Services provided by Allentown's Community Exchange — including gardening, cleaning, cooking and transportation — have allowed 79-year-old Joan Stevenson to stay in her home and out of assisted living.

"I'm enriched by it, not only from the services I receive but by being able to contribute," said Stevenson, who earns time dollars by writing for the Community Exchange newsletter, hosting Community Exchange meetings at her house and helping other members with their resumes and job searches.

Time banks are labor intensive and can be difficult to keep going. Most of the successful ones eventually get a paid staff, either by raising grant money or affiliating with a larger organization. Lehigh Valley Hospital & Health Network, the Allentown region's largest employer, pays the small staff of Community Exchange.

Manager Laura Gutierrez said time banks are worth the effort.

"Since the economy has been poor, people need to be a little more creative about using resources within a community that might not have been considered resources in the past," she said.

Which is exactly what Villacreses did to salvage her wedding plans.

The 28-year-old, who is fluent in English and Spanish and earns time dollars as a medical interpreter and by offering rides and pet-sitting, thought she would have to scale back when her fiance's hours at work were cut in half. Then fellow Community Exchange members suggested she use time dollars to pay for services that would typically cost hundreds of dollars.

On the big day, the bride sat at her dining room table while a complete stranger, Marilyn Shive, did her makeup.

"Show me which colors you tend to like," said Shive, a Community Exchange member who sells beauty products.

As Shive applied foundation and eyeliner, another member of Community Exchange delivered the cake. Others brought food and decorated the sanctuary and reception hall. During the service, time bankers took photos and played the organ.

In all, the wedding cost about 200 time dollars. By spending her time wisely, Villacreses figures she saved about $2,000.

http://news.yahoo.com/s/ap/us_banking_time

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Re: Barter income

Postby notorial dissent » Sat Jun 05, 2010 5:14 am

Mr. Mephistopheles wrote:On the subject of bartering:

`Banks' allow members to pay with time, not cash
By MICHAEL RUBINKAM, Associated Press Writer Michael Rubinkam, Associated Press Writer Thu Jun 3, 5:48 am ET

...........
(Time dollars are not taxable, according to Time Banks USA.)
..............

I would suspect the IRS will beg to differ on that statement, and I think their members would be much happier if they actually ran that past someone who actually knew something, as I suspect they are going to be in for a really serious and unhappy surprise somewhere down the road.
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Re: Barter income

Postby Arthur Rubin » Sat Jun 05, 2010 8:55 am

notorial dissent wrote:
Mr. Mephistopheles wrote:On the subject of bartering:

`Banks' allow members to pay with time, not cash
By MICHAEL RUBINKAM, Associated Press Writer Michael Rubinkam, Associated Press Writer Thu Jun 3, 5:48 am ET

...........
(Time dollars are not taxable, according to Time Banks USA.)
..............

I would suspect the IRS will beg to differ on that statement, and I think their members would be much happier if they actually ran that past someone who actually knew something, as I suspect they are going to be in for a really serious and unhappy surprise somewhere down the road.
Quite.

Well, "Time dollars" probably aren't taxable, as, in most barter transactions, you get taxed on the value of services received. As that value isn't known until you receive services, the "time dollars" you receive for your services aren't exactly taxable.
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Re: Barter income

Postby Imalawman » Mon Jun 07, 2010 2:22 pm

Arthur Rubin wrote:
notorial dissent wrote:On the subject of bartering:

`Banks' allow members to pay with time, not cash
By MICHAEL RUBINKAM, Associated Press Writer Michael Rubinkam, Associated Press Writer Thu Jun 3, 5:48 am ET

...........
(Time dollars are not taxable, according to Time Banks USA.)
..............

I would suspect the IRS will beg to differ on that statement, and I think their members would be much happier if they actually ran that past someone who actually knew something, as I suspect they are going to be in for a really serious and unhappy surprise somewhere down the road.
Quite.

Well, "Time dollars" probably aren't taxable, as, in most barter transactions, you get taxed on the value of services received. As that value isn't known until you receive services, the "time dollars" you receive for your services aren't exactly taxable.


I agree, Rubin. The IRS might assign a dollar value to the "time dollars", but only on the basis of the underlying value received. Further, without having any cash exchange hands, the audit and resulting tax is going to be hard to pay - considering the IRS won't accept "time dollars".
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Re: Barter income

Postby Burzmali » Mon Jun 07, 2010 4:40 pm

If I fix your computer and you mow my lawn, how could the IRS (or hell the average taxpayer) determine the tax owed on the transaction?

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Re: Barter income

Postby Imalawman » Mon Jun 07, 2010 4:50 pm

Burzmali wrote:If I fix your computer and you mow my lawn, how could the IRS (or hell the average taxpayer) determine the tax owed on the transaction?


Well, if you are a professional computer person, the IRS would look at your normal rates you charge to outside clients. If you are not a professional, then they would assign a value by using their industry data, applying discount for the lack of professional experience. (same with mowing lawns) If it were a mere passing transaction, you would have zero basis in the service you provided, thus leaving the value of the service as taxable income. If you are a professional, the deemed value would be gross income and you could then deduct ordinary business expenses.

Arguing zero income would be futile. As anyone can see, you received value for your zero basis services - there is taxable income. Thus, the only question would be "how much?". The IRS tends to win such cases due to their access to industry data and taxpayer's lack of record keeping.

This does happen and its really not as difficult as you might think. The difficulty for the IRS is actually picking up on these transactions in the first place.
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Re: Barter income

Postby Burzmali » Mon Jun 07, 2010 5:16 pm

I'm not trying to argue zero income, I'm just wondering have your average taxpayer is expected to address the issue. Most people are not privy to "industry data" hence they could not comply with the tax code without hiring a tax professional of some sort, that seems like overkill for someone that fixed a handful of neighbors' computers to get help fixing his deck or some such.

I'm just wondering how the IRS is going to deal with situations like the one presented in "Maneki Neko" by Bruce Sterling come to pass. I mean, organizations like Freecycle are already operating under a primitive version of this model and I haven't heard about their servers being seized to determine the extent of the massive income tax evasion/underpayment currently happening on them.

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Re: Barter income

Postby Arthur Rubin » Mon Jun 07, 2010 5:50 pm

Burzmali wrote:If I fix your computer and you mow my lawn, how could the IRS (or hell the average taxpayer) determine the tax owed on the transaction?
Actually, I agree that the average taxpayer might have a problem, especially, since, in this case "my" income would be the value of the lawn mowing services, and "your" income would be the value of the computer repair services, so the person with income is the one who has lesser knowledge of the value.

Of course, if someone were to trade with Harvester for tax advice, the value would be negative. :brickwall:
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Re: Barter income

Postby Imalawman » Tue Jun 08, 2010 2:44 pm

Arthur Rubin wrote:
Burzmali wrote:If I fix your computer and you mow my lawn, how could the IRS (or hell the average taxpayer) determine the tax owed on the transaction?
Actually, I agree that the average taxpayer might have a problem, especially, since, in this case "my" income would be the value of the lawn mowing services, and "your" income would be the value of the computer repair services, so the person with income is the one who has lesser knowledge of the value.


not necessarily...for instance, if you are on a barter system then all you have to know is the value of your own services. Since you traded "straight up", it would stand to reason that you received value equal to your services - otherwise, one of the parties should have demanded additional compensation. Sure, it can be tricky. But is operating a partnership any easier for tax purposes? Sub K can be very hard to apply, by comparison a barter system would not be terribly complex. I think its disingenuous for people to engage in barter systems and then complain that the tax component is complex. Hey, its your decision to operate on this level, you'd better get your shit together if you're going to do it. If you don't know the value of your services, chances are you're not going to last long in a barter system anyway.
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Re: Barter income

Postby Burzmali » Tue Jun 08, 2010 4:58 pm

I'm not trying to pick a fight, I'm just curious as to what the IRS plans to do about large scale "bartering" from individuals where no one has a cost basis and hence every transaction is taxable.

Freecycle is working on that system now, I can OFFER to give away an object, or list an object as WANTED hoping that someone has one lying around unused that they would be willing to give me. By my (unprofessional) observation, every transaction is taxable on the receivers side and the giver can't write down anything since he has no cost basis.

Also, trying to account for transactions between individuals like they were a couple of businesses is a fool's errand. Say I think that my computer services are worth more than my neighbor's lawn moving service, but since I only have one lawn to mow, we say that we'll figure out the balance later. Do I have some kind of personal balance sheet that I now list that as an asset? The IRS method of charging adjusted industry rate is the only method that is sane from a tax standpoint, but that gets real silly when scaled up, I mean is the IRS auditor going to pound on doors to find all the lawns I've mowed without a cash trail to follow?

The question remains, when you have organizations like FreeCycle around, how can the IRS effectively police bartering groups without acting like jackbooted thugs, kicking in doors and handing out tax bills to individuals that had no reasonable way of knowing what the owed? I'm not suggesting they aren't or shouldn't tax those transactions, I'm just wondering how can enforce it on a large scale without having folks out for their blood.

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Re: Barter income

Postby bmielke » Tue Jun 08, 2010 5:09 pm

Burzmali wrote:I'm not trying to pick a fight, I'm just curious as to what the IRS plans to do about large scale "bartering" from individuals where no one has a cost basis and hence every transaction is taxable.

Freecycle is working on that system now, I can OFFER to give away an object, or list an object as WANTED hoping that someone has one lying around unused that they would be willing to give me. By my (unprofessional) observation, every transaction is taxable on the receivers side and the giver can't write down anything since he has no cost basis.

Also, trying to account for transactions between individuals like they were a couple of businesses is a fool's errand. Say I think that my computer services are worth more than my neighbor's lawn moving service, but since I only have one lawn to mow, we say that we'll figure out the balance later. Do I have some kind of personal balance sheet that I now list that as an asset? The IRS method of charging adjusted industry rate is the only method that is sane from a tax standpoint, but that gets real silly when scaled up, I mean is the IRS auditor going to pound on doors to find all the lawns I've mowed without a cash trail to follow?

The question remains, when you have organizations like FreeCycle around, how can the IRS effectively police bartering groups without acting like jackbooted thugs, kicking in doors and handing out tax bills to individuals that had no reasonable way of knowing what the owed? I'm not suggesting they aren't or shouldn't tax those transactions, I'm just wondering how can enforce it on a large scale without having folks out for their blood.


The ATF does it all the time, they surf internet forums looking for people offering to sell guns, or looking to buy guns and turning around and selling different guns, they lay in wait until they find someone who is making a business out of it like buying 10-12 guns and selling as many, and someone will always try and make a business out of it and then bam they strike, sometimes with undercover agents, sometimes with other records and get the person for (in the ATF's case) Dealing without a FFL. The IRS will hit them for tax evasion.

At least that's my unprofessional opinion. THe IRS will look for one or two people to make an example out of.

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Re: Barter income

Postby Burzmali » Tue Jun 08, 2010 5:47 pm

bmielke wrote:The IRS will hit them for tax evasion.

At least that's my unprofessional opinion. THe IRS will look for one or two people to make an example out of.

Evasion will be a tricky point to prove, FreeCycle's objective is to remove the amount of stuff people put in landfills by finding other people that want it. Jumping from that to evasion is a bit of a leap...

bmielke

Re: Barter income

Postby bmielke » Tue Jun 08, 2010 5:57 pm

Burzmali wrote:
bmielke wrote:The IRS will hit them for tax evasion.

At least that's my unprofessional opinion. THe IRS will look for one or two people to make an example out of.

Evasion will be a tricky point to prove, FreeCycle's objective is to remove the amount of stuff people put in landfills by finding other people that want it. Jumping from that to evasion is a bit of a leap...


Someone will make a business out of trading stuff for stuff and then selling it at flea markets, buying cheap stuff to trade for better stuff. That's the kind of person the IRS will go after, it will be messy and noisy but the IRS will have bartering regulated. It's in our nature as Americans to see something cool and try and make a bucj doing it.

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Re: Barter income

Postby Arthur Rubin » Tue Jun 08, 2010 6:57 pm

Burzmali wrote:Freecycle is working on that system now, I can OFFER to give away an object, or list an object as WANTED hoping that someone has one lying around unused that they would be willing to give me. By my (unprofessional) observation, every transaction is taxable on the receivers side and the giver can't write down anything since he has no cost basis.
The last time I checked Freecycle, there were no books as to who offered what (except some sites keep track of reported items listed which turn out to be different than offered). It's a real gifting service, as no return is given or expected.
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Re: Barter income

Postby Burzmali » Tue Jun 08, 2010 7:28 pm

bmielke wrote:Someone will make a business out of trading stuff for stuff and then selling it at flea markets, buying cheap stuff to trade for better stuff. That's the kind of person the IRS will go after, it will be messy and noisy but the IRS will have bartering regulated. It's in our nature as Americans to see something cool and try and make a bucj doing it.

That's regulating flea markets not the bartering. In striking there, the source of the goods is irrelevant, they could be picked up off the street.

Arthur Rubin wrote:It's a real gifting service, as no return is given or expected.

Yes and no. If you offer a used computer, you will get dozens or hundreds of requests. How do you choose? Many people will check to see if the prospective receiver has ever OFFERed anything before. Likewise, if I have an item that is WANTED by someone else, I will check to see if they have OFFERed anything before. IANAL, but since offering something clearly has the intangible benefit of increasing your priority in the system, it could be easily argued that an OFFERed item isn't a "gift" in the typical sense.

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Re: Barter income

Postby Arthur Rubin » Tue Jun 08, 2010 9:07 pm

Burzmali wrote:
Arthur Rubin wrote:It's a real gifting service, as no return is given or expected.

Yes and no. If you offer a used computer, you will get dozens or hundreds of requests. How do you choose? Many people will check to see if the prospective receiver has ever OFFERed anything before. Likewise, if I have an item that is WANTED by someone else, I will check to see if they have OFFERed anything before. IANAL, but since offering something clearly has the intangible benefit of increasing your priority in the system, it could be easily argued that an OFFERed item isn't a "gift" in the typical sense.
I hadn't considered that. Perhaps we'll just need to fall back to there being no "secondary market" for most of the objects, making it impossible to assign a value. Although $0 is clearly inappropriate, perhaps regulations could still assign $0.
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