The Taxation of Barter Transactions
![handle is hein.journals/mnlr67 and id is 453 raw text is: The Taxation of Barter Transactions
Robert I. Keller*
INTRODUCTION
This Article discusses the tax consequences of two vari-
eties of barter1 transactions. One is the familiar direct barter in
which one taxpayer exchanges goods or services for the goods
or services of a second taxpayer. The second, and of a more re-
cent vintage, is the organized form of indirect bartering accom-
plished through so-called trade exchanges or barter clubs. In
barter clubs, a member who performs services for, or sells
goods to, another member receives trade credits that can be ex-
changed for goods or services of other members.2
Part I of this Article focuses on the tax treatment of direct
barter exchanges. It considers not only exchanges between
previously unrelated individuals, as where a doctor swaps serv-
ices with a plumber, but also those between employers and em-
ployees. While the term barter in common parlance connotes
only the former type of transaction, many transactions between
employers and employees also involve the exchange of noncash
considerations. For example, when an employer compensates
an employee in property, the employer is, in effect, engaging in
* Professor of Law, University of Maryland School of Law. The author is
grateful for the research assistance of Jon J. Robinson.
1. According to the RANDOM HOUSE DICTIONARY OF THE ENGLISH LAN-
GUAGE 122 (unabr. ed. 1967), to barter means to trade by exchange of commod-
ities rather than by the use of money. The word barter is derived from the
French barater, to cheat or exchange, and barate, confusion, trouble or deceit.
Id. In a recent IRS survey, 62% of U.S. taxpayers said their consciences would
not bother them if they failed to declare the value of income derived from bar-
ter. Maital, The Tax-Evasion Virus, PSYCHOLOGY TODAY 74 (1982).
Estimates of unreported income from barter transactions were omitted
from a recent IRS report on noncompliance because no reliable data could be
developed. See INTERNAL REVENUE SERVICE, ESTIMATES OF INCOME UNRE-
PORTED ON INDIVIDUAL INCOME TAX RETURNS, PuB. No. 1104, at 19 (1979). The
report referred to a study conductd for H & R Block by The Roper Organization
which presented estimates of barter income ranging from $1.6 billion to $4.1
billion but noted that shortcomings in the underlying methodology [made
those] figures suspect. Id.
2. Barter clubs and their members have recently come under the intense
scrutiny of the Internal Revenue Service. See infra notes 209-20 and accompa-
nying text.](ViewImageLocal?handle=hein.journals/mnlr67&div=20&collection=&method=preview&ext=.png&size=3)
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The Taxation of Barter Transactions
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