Suppose that I carried out all of my economic transactions by bartering. Of course, the IRS taxes bartered exchanges. But do I have to pay those taxes with dollars? If I only bartered, I might have no dollars. Would the IRS let me pay my taxes in some good, such as chickens, instead of dollars?
That is an interesting question. Pure bartering is supposed to involve equal transactions where each side gains from the barter but the value in the transaction as a whole stays the same so there shouldn’t be any gains to tax. This obviously isn’t always true though. There was a story a little while ago in which a teen started with a used cell phone and bartered from one person to the next until he worked his way up to a used Porsche.
The value of the first and last thing is vastly unequal in this case but they were all considered roughly equal and fair trades at the time they were made. I don’t think anyone with assets lives on a pure bartering system in the U.S. but it would be interesting to see what the IRS would do if you have things but no cash. Actually, it probably wouldn’t be that interesting. They would probably just take your stuff and sell it if they wanted.
http://www.autointhenews.com/teen-trades-up-on-craigslist-from-phone-to-porsche-in-2-years/
Traded up from a red paperclip to a house.
Whilst it is a nice story a lot of the trades were due to the story being well known at the time and people wanting publicity by being part of the story. It would have been a better story if it had been done ‘on the quiet’.
Regarding the OP, I think anything can be classed as legal tender for a payment of debt provided both parties agree to the trade. The IRS is unlikely to accept chickens instead of cold, hard cash and you would probably end up with what Shagnasty suggested, they would seize some of your assets and get their money that way. This is all assuming they can prove you owe them money in the first place.
Of course, if it had been done that way it never would have been successful. What’s crazy is that towards the end it would have seemed like he blew it… I mean he traded a year’s rent in Phoenix for a KISS snow globe two steps later? A snow globe? WTF. And then from that to a house in another two steps. Whoever gave him the “movie role” must have really liked KISS, and snow globes. And even then it’s completely artificial since a movie role just isn’t something that you can trade under normal circumstances. Movies cast specific individuals for specific parts.
Under the tax laws, bartering is taxable on just the same basis as cash-payment sales. You are supposed to consider the fair market value of the item bartered. What this means is that you can and probably will have taxable gain or profit on the item bartered, presuming that you got it for less money (or equivalent value) than the value you are bartering it away for. If it is something you produced yourself, all of its value (less the cost of raw materials, legitimate overhead and the like) would be considered earned income to you.
Clearly, the guy had read this classic children’s book.
No, Shagnasty is more right. In the case of used consumer goods, the very act of the trade assumes that both items are being traded at FMV. Since they are used, it is presumed you paid more for them new. So, if I had my excercise machine sitting unused and traded it to you for your old TV now that you bought a super-3-D model, there’s no tax consequences. Both are used, thus FMV is less than new, the act of the trade makes them equal.
Taxable gain comes in actually when you trade services, which is what the “Bartering clubs” do- My Bro would do your taxes, you’d detail/hand-wax his car. In that case, each side has taxable income = to the normal price you’d charge for that service.
Realistically, the answer has to be no. Because allowing it even once is like giving a license to every loon and moron in America to act like a loon and moron.
What if a service is offered and performed for free? For example: Person A fixes Person B’s computer for free, they are good friends. The next week Person A has car troubles and Person B fixes it for free to level things out.
The trade wasn’t agreed upon in advance, do both A and B need to declare the free service as taxable income?
I believe that’s called received value. Which even if it was one way you;d technically owe tax for.
Just want to say I read this as “Can US taxes be paid in children.”
Only in Nevada
From the IRS:
Topic 420 - Bartering Income
The question here is not whether bartering exists. It’s whether the IRS allows it for paying taxes in lieu of cash. There’s nothing in Topic 420 that addresses the question.
The IRS only accepts payment in US currency. I’m not certain if this is written into law, but the IRS is empowered (as an arm of the executive branch of the government) to put in place its own regulations and policies so it doesn’t have to be part of the law to be enforceable that way.
Of course, you’d like have problems with other government agencies too. It’s not likely you could pay your property taxes, sales tax or state income tax with chickens.
No, no taxable income as long as both sides have no expectation of a quid pro quo, and generally do favors like that for each other.
The bartering won’t last forever. At some point, this guy is going to barter his stuff for food, and eat it. And then he will need to replenish or starve. If he finds food out in the wild, that will be his taxable income.
As an official tax-talking guy, I’ll say that this has to be the correct answer. I’ve never thought about the OP’s question, but if taxes could be paid in property, I’d imagine that many corporations would pay tax in stock, which I’ve never heard of.
This sounds a lot like the classic $200 condom–the sex is free, but that condom is going to cost you (and it’s required).
I have some personal experience with this…
Back in the 1980s, there was an idea of allowing businesses to barter with each other through exchanges set up purposefully for that purpose. A member of that exchange would pay you in barter dollars for your services.
For example, you’re a painter. To paint someone’s house involves say $50 worth of paint, but people mainly pay you for your labor, so you charge $1000. Someone who was a member of your barter exchange could pay you $1000 barter dollars. You could then use these dollars to have someone repair your car. The idea was that you could get buy goods and services even if you didn’t have the cash.
I worked for a small computer firm and one of our clients was a barter exchange. The barter exchange made its money by charging a 10% transaction fee (payable in legal tender only) for each transaction.
The problem is that each transaction was fully taxable by the IRS as income, and Uncle Sam didn’t take barter dollars. If you were paid $1000 barter dollars for painting someone’s house, you could deduct the $50 worth of paints from your income, but Uncle Sam wanted you to pay taxes on the $950 you earned. And, thanks to the barter exchange, you didn’t have $200 or so dollars in legal tender to pay for it.