Is Barter Taxable?


U

usenet_address

In the hypothetical case that I exchange a TV set for a laptop, is my
'profit' from this transaction taxable?

I realize that in _practice_ barter is hard to tax, but what if I
stick a copy of the barter contract under an IRS bureaucrat's nose --
does that make me liable to pay taxes?

What if I set up a shop in which my customers pay me in goods rather
than money, what is my tax liability in this case and how does the IRS
determine it?

Thank You,
Alex
 
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D

D. Stussy

In the hypothetical case that I exchange a TV set for a laptop, is my
'profit' from this transaction taxable?
That's not bartering. Barter is when one exchanges a SERVICE that one provides
for either a service or property. Barter is taxable - and identified as such
by some long standing treasury regulations supporting IRC section 61 (which
defines "gross income").

What you listed is a property exchange. Some types of property exchanges are
defined as not taxable, while others are (either fully or partially).
I realize that in _practice_ barter is hard to tax, but what if I
stick a copy of the barter contract under an IRS bureaucrat's nose --
does that make me liable to pay taxes?

What if I set up a shop in which my customers pay me in goods rather
than money, what is my tax liability in this case and how does the IRS
determine it?
Fair market value of the goods or services received, unless the service
provided can have its value more easily determined.
 
C

Carlos, The Jackal

In the hypothetical case that I exchange a TV set for a laptop, is my
'profit' from this transaction taxable?
Try misc.taxes.moderated for a more detailed answer. The answer is "yes",
though.
 
D

Dan Evans

In the hypothetical case that I exchange a TV set for a laptop, is my
'profit' from this transaction taxable?
Yes, if you have a profit.

In this kind of situation, your "profit" (or "gain") is the difference
between your basis in the TV set and the present value of the laptop.
If you used the TV set in a trade or business and depreciated it, then
your basis might be zero (or close to zero) and your gain is the full
amount of the value of the laptop. But if you used the TV was for
personal use and not depreciated, then your basis is the full cost of
what you paid for the TV.

The price of a TV purchased some years ago might be less than the
value of a used laptop, so you might not have any gain at all (or not
much).
What if I set up a shop in which my customers pay me in goods rather
than money, what is my tax liability in this case and how does the IRS
determine it?
Your gross income is the value of the goods received.

How would the IRS value the goods received? As best they can.


**Dan Evans
**I post information, not advice.
 
D

Dan Evans

That's not bartering. Barter is when one exchanges a SERVICE that one provides
for either a service or property.
I don't know where you got that definition for "barter." An exchange
of services for goods or services is one kind of barter. Another is
exchanging goods of one kind for goods of another kind.

For example, section 6045(c)(3) contains the following definition:

"The term 'barter exchange' means any organization of members
providing property or services who jointly contract to trade or barter
such property or services."

You don't really think that the IRS intended to exclude the exchange
of property for property from the definition of "barter exchange," do
you?


**Dan Evans
**I post information, not advice.
 
G

Grinch

In the hypothetical case that I exchange a TV set for a laptop, is my
'profit' from this transaction taxable?

I realize that in _practice_ barter is hard to tax, but what if I
stick a copy of the barter contract under an IRS bureaucrat's nose --
does that make me liable to pay taxes?

What if I set up a shop in which my customers pay me in goods rather
than money, what is my tax liability in this case and how does the IRS
determine it?

Thank You,
Alex
If money receved in exchange for something you provide would be
taxable, then the value of goods or services you receive in lieu of
the money will be equally taxable. So, the answer is "yes".
 
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D

D. Stussy

I don't know where you got that definition for "barter." An exchange
of services for goods or services is one kind of barter. Another is
exchanging goods of one kind for goods of another kind.

For example, section 6045(c)(3) contains the following definition:

"The term 'barter exchange' means any organization of members
providing property or services who jointly contract to trade or barter
such property or services."

You don't really think that the IRS intended to exclude the exchange
of property for property from the definition of "barter exchange," do
you?
Yes, I do. Why?

1) The definition of barter in the TR's under IRC 61 talk about compensation.
That means that one party has provided a service.

2) Property for property is an EXCHANGE under the tax code - and some
exchanges are exempt (literally, "not recognized or includible in gross
income") for tax purposes. In ALL cases, bartering is taxable (i.e. never
exempt). TR 1.61-6 does not describe such an exchange of property as a barter
transaction, but as an exchange or sale.

Even IRC 6045 cannot escape using the word "exchange" where property for
property is included.
 
L

Lesstax

Dan Evans said:
For example, section 6045(c)(3) contains the following definition:

"The term 'barter exchange' means any organization of members
providing property or services who jointly contract to trade or barter
such property or services."

You don't really think that the IRS intended to exclude the exchange
of property for property from the definition of "barter exchange," do
you?
Barter Exchange in this section refers to a "Trade Club" (an orgainzation)
not the "exchange" of goods.

Barter Exchanges provide 1099's to its members.

B
 
D

Dan Evans

Yes, I do. Why?

1) The definition of barter in the TR's under IRC 61 talk about compensation.
That means that one party has provided a service.
All that means is that an exchange of property for services is one
kind of barter. It doesn't mean that an exchange of property for
property is not a barter.
2) Property for property is an EXCHANGE under the tax code - and some
exchanges are exempt (literally, "not recognized or includible in gross
income") for tax purposes.
All that means is that *some* barter transactions are exempt.
In ALL cases, bartering is taxable (i.e. never
exempt).
Who says so?
TR 1.61-6 does not describe such an exchange of property as a barter
transaction, but as an exchange or sale.
The fact that the regulation does not use the word "barter" does not
mean that the transaction cannot be described as a barter transaction.
Even IRC 6045 cannot escape using the word "exchange" where property for
property is included.
The fact that there is an exchange does not mean there is not a
barter.

And, if you are right, then the IRS was wrong in Rev. Rul. 90-80,
1990-2 C.B. 170, when it wrote:

"Under section 1001 of the Code, gain or loss will be recognized on
each separate barter exchange. The amount of gain or loss will be the
difference between the adjusted basis of the property exchanged and
the fair market value of the property received."

You had better get in touch with the IRS and let them know that a
"barter exchange" does NOT include exchanges of property for property,
and that Rev. Rul. 90-80 is wrong.


**Dan Evans
**I post information, not advice.
 
D

D. Stussy

All that means is that an exchange of property for services is one
kind of barter. It doesn't mean that an exchange of property for
property is not a barter.


All that means is that *some* barter transactions are exempt.


Who says so?


The fact that the regulation does not use the word "barter" does not
mean that the transaction cannot be described as a barter transaction.


The fact that there is an exchange does not mean there is not a
barter.

And, if you are right, then the IRS was wrong in Rev. Rul. 90-80,
1990-2 C.B. 170, when it wrote:

"Under section 1001 of the Code, gain or loss will be recognized on
each separate barter exchange. The amount of gain or loss will be the
difference between the adjusted basis of the property exchanged and
the fair market value of the property received."

You had better get in touch with the IRS and let them know that a
"barter exchange" does NOT include exchanges of property for property,
and that Rev. Rul. 90-80 is wrong.
You seem to have confused the common term of barter with the legal term as it
is used in the IRC.
 
A

Arthur L. Rubin

In the hypothetical case that I exchange a TV set for a laptop, is my
'profit' from this transaction taxable?

I realize that in _practice_ barter is hard to tax, but what if I
stick a copy of the barter contract under an IRS bureaucrat's nose --
does that make me liable to pay taxes?

What if I set up a shop in which my customers pay me in goods rather
than money, what is my tax liability in this case and how does the IRS
determine it?
Contrary to Mr. Stussy's assertion, that IS barter.

Your gross income from the situation you specify is the fair market
value of the items given you in payment. How you or the IRS
determines this is another question.
 
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D

Dan Evans

You seem to have confused the common term of barter with the legal term as it
is used in the IRC.
I have noticed that you often shoot from the hip, and don't seem to
know what you are talking about, but I didn't realize that you were so
obstinate in trying to defend your mistakes.


**Dan Evans
**I post information, not advice.
 
D

D. Stussy

Contrary to Mr. Stussy's assertion, that IS barter.
I obviously disagree. Barter is trading a service for a service or property.
Trading property for property is an exchange (which may or may not be taxable).

The last example (customers pay for his service with goods) is barter; I didn't
say otherwise. Apparently, "AR" has been confused by the subtile differences
in what I have said.
 
D

D. Stussy

I have noticed that you often shoot from the hip, and don't seem to
know what you are talking about, but I didn't realize that you were so
obstinate in trying to defend your mistakes.
Then tell me why the term EXCHANGE is used when there is a property for
property trade, but NOT for service for property, or service for service.
Conversely, why is BARTER used for service for service or service for property,
but not property for property.

All one has to do is follow the IRC and note the clear difference in usage to
know that there is in fact a difference. Lastly, note that IRC 6045 isn't
going to be conclusive since it also encompasses BROKERS, who are dealers in
property (be it stocks, bonds, commodities, etc...) who normally buy or sell
(i.e. "trade property for currency").

It's NOT "shooting from the hip" where experience is used. These are simple
terms.
 
G

Grinch

Yes, I do. Why?
1) The definition of barter in the TR's under IRC 61 talk about compensation.
That means that one party has provided a service.
The TR-61 Regs do not define "barter", the word never even appears in
them. Unless you can find it.
http://www.access.gpo.gov/nara/cfr/waisidx_00/26cfr1v2_00.html

And what you apparently refer to, Reg 1.61-2 on "compensation", is
about compensation paid to *employees* for their services.

Not surprisingly, it does discuss "compensation paid other than in
cash" -- but it never uses, much less defines, the word "barter".

And even if these regs did mention barter, which they don't,
regulations relating to valuing compensation paid to workers would
have nothing to do with rules for a business's realization of income.
They are irrelevant to the issue.

OTOH, the Regulations that do set the rules for realizing business
income and expenses *do* give a definition of barter...
2) Property for property is an EXCHANGE under the tax code - and some
exchanges are exempt (literally, "not recognized or includible in gross
income") for tax purposes. In ALL cases, bartering is taxable (i.e. never
exempt). TR 1.61-6 does not describe such an exchange of property as a barter
transaction, but as an exchange or sale.
Sec. 1.461-4 Economic performance.

"Barter transactions. If the liability of a taxpayer requires
the taxpayer to provide services, property, or the use of property,
and arises out of the use of property by the taxpayer, or out of the
provision of services or property to the taxpayer by another ..."

Barter transactions -- property for property right there.

So the IRS isn't kidding when it says throughout it's publications and
web site that...

"Bartering occurs when you exchange goods or services without
exchanging money."

Goods *or* services. Not good "for" services.
 
G

Grinch

I obviously disagree. Barter is trading a service for a service or property.
Trading property for property is an exchange (which may or may not be taxable).

The last example (customers pay for his service with goods) is barter; I didn't
say otherwise. Apparently, "AR" has been confused by the subtile differences
in what I have said.
Well as 'subtile' and not so subtle errors go...

Mr. Stussy apparently has confused himself, somehow concluding that
1.61-2 Regs that discuss employee compensation without even mentioning
the word "barter" once somehow provide a definition of the word for
purposes of a business's realization of income and expense.

While also concluding at the same time that the 1.461 Regs on Economic
Performance, which specifically determine rules for realizing business
income and expenses, and which specifically define "barter
transactions" as including property-for-property exchanges, are for
some reason to be ignored.

"Barter" includes "property for property" to the IRS just as it does
in plain English for everyone else.

As the IRS says in many places throughout its publications and web
site:

"Bartering occurs when you exchange goods or services without
exchanging money."

In saying "goods or services" rather than "goods *for* services" it is
neither sloppy, nor wrong, nor kidding.
 
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D

Dan Evans

Then tell me why the term EXCHANGE is used when there is a property for
property trade, but NOT for service for property, or service for service.
Conversely, why is BARTER used for service for service or service for property,
but not property for property.

All one has to do is follow the IRC and note the clear difference in usage to
know that there is in fact a difference.
You're presenting your assertions as though they were facts, and
asking me explain them. First, we need to figure out if your
assertions are correct.

As far as I can tell, the ONLY place in which the word "barter" occurs
in the Internal Revenue Code and regulations is as part of the phrase
"barter exchange," so to claim that the words "barter" and "exchange"
have a "clear difference in usage" is nonsense. See discussion of
section 6045 below.)

My dictionary defines "barter" as "to trade goods or services without
the exchange of money." I see nothing in the definition that would
exclude an exchange of property for property from the definition of
"barter," and I see nothing in the Internal Revenue Code or
regulations that would exclude the exchange of property for property
from the definition of "barter" or "barter exchange."

As I have already pointed out, In fact, Rev. Rul. 90-80, 1990-2 C.B.
170, states that:

"Under section 1001 of the Code, gain or loss will be recognized on
each separate barter exchange. The amount of gain or loss will be the
difference between the adjusted basis of the property exchanged and
the fair market value of the property received."

And Rev. Rul. 90-80 has nothing whatsoever to do with section 6045 and
never refers to any special definition of "barter exchange," but uses
the phrases "barter transaction" and "barter exchange"
interchangeably.

In Rev. Rul. 79-24, 1979-1 C.B. 60, which includes "gross income;
barter transactions" in its summary, the IRS ruled that the exchange
of a painting (property) for the use of an apartment (also property)
resulted in taxable income to both parties.

Publication 525, "Taxable and Nontaxable Income," includes a section
titled "Bartering," which has the Rev. Rul. 79-24 transaction (art
work for apartment) as Example 4, and starts with the following
explanation:

"Bartering is an exchange of property or services. You must include in
your income, at the time received, the fair market value of property
or services you receive in bartering. ... Generally, you report this
income on Schedule C or Schedule C-EZ (Form 1040). However, if the
barter involves an exchange of something OTHER THAN SERVICES, such as
in Example 4 below, you may have to use another form or schedule
instead." (Emphasis added.)

Exchanges of services for goods, goods for services, and services for
services are frequently referred to as "barter" transactions, but so
are exchanges of goods for goods, and I see nothing in the Internal
Revenue Code or regulations, and nothing in any ruling or court
decision, that would EXCLUDE an exchange of goods for goods from the
meaning of the word "barter."
Lastly, note that IRC 6045 isn't
going to be conclusive since it also encompasses BROKERS, who are dealers in
property (be it stocks, bonds, commodities, etc...) who normally buy or sell
(i.e. "trade property for currency").
As noted above, section 6045 is actually the ONLY place in the
Internal Revenue Code that uses the word "barter." If it is "not
conclusive," then what evidence is left? The non-use of the word in
other sections?

And IRC 6045 includes a specific definition of "broker exchange" as
"any organization of members providing property or services who
jointly contract to trade or barter such property or services."

There is nothing in that definition, or the regulations under section
6045, to suggest that exchanges of property for property are excluded
from the definition of "barter exchange." To the contrary, the
utility of the reporting requirements would be greatly reduced if
barter clubs could be relieved of reporting exchanges of property for
property.


**Dan Evans
**I post information, not advice.
 
D

Dan Evans

I obviously disagree. Barter is trading a service for a service or property.
Trading property for property is an exchange (which may or may not be taxable).
You keep asserting that an exchange of goods for goods is NOT a
"barter," but you have yet to support your assertion with any evidence
from the Internal Revenue Code or any regulation, ruling, or court
decision.


**Dan Evans
**I post information, not advice.
 
G

Grinch

Yes, I do. Why?

1) The definition of barter in the TR's under IRC 61 talk about compensation.
That means that one party has provided a service.
Putting aside for the moment the fact that these regs don't even
mention the word "barter", much less define it...
2) Property for property is an EXCHANGE under the tax code - and some
exchanges are exempt (literally, "not recognized or includible in gross
income") for tax purposes. In ALL cases, bartering is taxable (i.e. never
exempt).
OK, with all-caps emphasis these regs regarding employee compensation
purportedly say that ALL service-for-*service* exchanges, purportedly
being barter, are taxable and "never exempt". (To the employee, at
least. They are deductible to the employer, of course.)

So if I pay my employees by providing them with services in lieu of
cash -- say with medical, educational, insurance, dependent care,
legal, transportation, parking, etc, services -- these services will
all always be taxable and never tax exempt.

Certainly true -- except when they are provided in a manner which
under the tax code qualifies them as being tax exempt.

Which pretty much puts them in the same category as the
property-for-property barter that is described in the economic
performance regs -- always taxable, except when not.
TR 1.61-6 does not describe such an exchange of property as a barter
transaction, but as an exchange or sale.

Even IRC 6045 cannot escape using the word "exchange" where property for
property is included.
Well, it's hard to avoid the word "exchange" when defining and
describing barter.
 
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D

Dan Evans

As far as I can tell, the ONLY place in which the word "barter" occurs
in the Internal Revenue Code and regulations is as part of the phrase
"barter exchange," so to claim that the words "barter" and "exchange"
have a "clear difference in usage" is nonsense. See discussion of
section 6045 below.)
Correction: The only place the word "barter" appears in the Internal
Revenue Code is as part of the phrase "barter exchange." The same is
not true of the regulations.

Treas. Reg. 1.461-4 also has a section on the timing of deductions
that arise out of "barter transactions." (The word "barter" also
appears in Treas. Reg. 1.993-1, but it seems to be a proper noun
referring to a specific program of the Commodity Credit Corporation.)


**Dan Evans
**I post information, not advice.
 

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