Partial barter purchase and sale

[Art]

In 2013 taxpayer agrees to purchase a small tract of ground FMV $35,000. He gives the seller $15,000 in cash and he agrees to do excavating work for the seller (on an unrelated project) as payment for the balance of the purchase price. Taxpayer personally owns the excavating equipment that he uses on his farm. He is not a contractor and does not do excavating work as a business. Taxpayer should have reported $20,000 of barter income in 2012, Correct?
If so, would he then have a tax basis in the property of $35,000?
If he sells the property 2015 for $55,000 he would report a capital gain of $20,000 assuming the property was held for investment. Correct?
Problem: If taxpayer did not report the gain in 2013 and refuses to amend the return how do you report the sale in 2015?

[Roland Slugg]

Taxpayer should have reported $20,000 of barter income in 2012, Correct?
If so, would he then have a tax basis in the property of $35,000?
If he sells the property 2015 for $55,000 he would report a capital gain of $20,000 assuming the property was held for investment. Correct?

Correct.
Correct.
Correct, assuming he reports/reported the other $20k as income.

Problem: If taxpayer did not report the gain in 2013 and refuses to amend the return how do you report the sale in 2015?

For ethical reasons, I would not prepare his tax return. If you are willing to do so, however, use a basis of $15,000.