Finding Clarity in the IRS's Position on Barter Transactions

William Brighenti

In the current economic climate, with its relative tightness of money, many individuals and businesses have been conducting transactions through bartering. As such, CPA advisors should be knowledgeable about the correct tax treatment of bartered transactions. The IRS has a Bartering Tax Center on its website, but it is perhaps not as clear as it could be (www.irs.gov/businesses/small/article/0,,id=187920,00.html). What is clear is that bartered services or products generate income that needs to be included in gross income on business tax returns. Typically, products and services provided in a direct exchange between companies or individuals for other products and services are reported at their fair market value on Form 1099-MISC, Miscellaneous Income. Barterers are required to include in gross income the fair market value of the products or services received. On the other hand, swaps conducted through a barter exchange are reported by the exchange on Form 1099-B to its members, who are required to include in gross income the fair market value of the products or services provided. A barter exchange is an organization of traders who use a third-party record keeper to effect and record the trades.