Tax Requirements for Barter Exchanges
Bartering, the oldest known form of economic activity, involves the trading of one item or service for another, often on an informal basis. Barters can be negotiated at any time, any place, and between any two (or more) parties or their intermediaries. However, they often occur in pre-arranged, contract-mediated marketplaces, known as barter exchanges. Barter exchange companies facilitate the fair transfer of goods between their members, often charging a percentage of the transaction.
The IRS requires barter exchanges to file a Form 1099-B to list proceeds from their brokerage of member trades. Certain exempt foreign individuals, and barter exchanges reporting fewer than 100 transactions per year, or those whose goods and services are worth less than $1.00, are not required to file. Those bartering their goods on exchanges will receive a Form 1099-B listing their profits, which they then must report as income on a Federal tax return.
The Form 1099-B list such items as the dates of sale or exchanged, the dollar amount and classes of stocks, bonds and other financial instruments exchanged, total dollar value of bartered items or services, the Profit or (loss) realized in the previous calendar year, unrealized profit (or loss) on open contracts, and aggregate profit or loss. The name, address, and taxpayer identification number of each member or client providing property or services in the exchange must also be listed.
Services and goods transferred by corporate members on exchanges are reported in aggregate at the end of every year. By contrast, each transaction by a non-corporate member is reported on an individual basis, leading to a potential required filing of multiple 1099-B Forms per year.
Failure to file 1099-B forms can lead to considerable IRS penalties, up to the amount of $250,000 per year in which returns are not filed, filed late, or filed incorrectly. Small businesses, which are defined for the purposes of the tax code as business with annual gross receipts of less than $3 million for the three previous years, are subject to smaller maximum penalties.