Barter

[Gary]

I have a client that received a 1099-B with an amount listed in box 3, barter. This actually was a barter. He provides services (TV productions) and receives barter payments from a company. He is a sole proprietor, so i put his amount from the 1099-B as income on the schedule C. I hope this was correct. Any comments?

Gary

[erchess]

My understanding is that

in a barter transaction there is supposed to be an agreement as to what the cash price of the services being exchanged would be and that this is supposed to be the same price. I would bet that in the opinion of the ot the other party to the deal that figure is the cash value of what was exchanged.

For example, I might do the tax return for a car repair service. It may be that I will decide that my charge for the return is $300 but that instead of giving me cash the owner will put a new transmission in my car. It is usually the case that the reason for barter in the real world is to avoid income tax but that is not legal and there are many many regulations on barter that are all designed to thwart this usual purpose. In the case I mentioned where the garage owner and I agree on $300 then we both report that amount as income. If the IRS can later establish that one of us normally charges 400 for the service he provided then it will change both returns and want more tax plus penalty and interest.

[ED SMITH]

If he got a 1099-B, it is possible he belongs to a barter exchange. In these cases he bills through the exchange for services he has provided and pays cash to the exchange for services or goods provided to him. We do a large amount of business this way.

[Gary]

Yes

Yes, Ed, he does belong to a barter exchange. Was I correct in including this as income on his schedule C?