Friday, August 18, 2017
Work in Exchange for Economic Gain is Taxable Income
Welemin, TC Summ. Op. 2017-54
Tax Law Background
The fair market value of goods and services received from another person in a barter arrangement is treated as gross income for tax purposes.
The term "gross income” is broadly defined in the code to include all income from whatever source derived. Gross income encompasses compensation for services, including fees, commissions, fringe benefits, and similar items.
The taxpayer Welemin and his family rented a home in an apartment in California. Mr. Welemin was a handyman by trade. The taxpayer was falling behind on rent payments. To avoid eviction the taxpayer made an informal arrangement with the lessor to provide repair and maintenance services in exchange for reduced rent. The lessor issued a 1099-Misc for $12,000, and the taxpayer disagreed both with this amount, and the fact that he should have to report it as gross income. The taxpayer intentionally omitted this income from his tax return.
The court ruled that Mr. Welemin should have reported his services rendered as taxable income. Due to the omission of the income altogether, it was concluded that the taxpayer was also liable for an accuracy related penalty.
Bartering is a taxable transaction. If engaging in barter transactions, be sure to properly report these transactions as the fair market value of services received in gross income. Note that the payor is also responsible for submitting the year end Form 1099-MISC to the payee.
Greg I. Nelson, CPA, MBT; Ryan Kelly, CPA, MBT
Olsen Thielen, CPAs
Greg Nelson, CPA, MBT
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