Barter Economy Avoids the Long Arm of the IRS … for Now.

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Reader Dan G. sent me a fascinating story on the popularity of bartering in a distressed economy. The story is about the Roanoke Valley TimeBank, a place where,

…there’s no money involved — only time. It all comes down to time credits and debits, which are recorded on the TimeBank Web site.

The idea is that for every hour you spend helping someone, you’ll get an hour credit for something you need help with. The hope is that people will take it upon themselves to keep their time accounts roughly balanced, though Thompson stressed that in this bank, there’s nothing wrong with going into debt.

This is a place where people are trading “editing, yard work, car detailing, Spanish lessons, brochure and flyer design, knitting lessons, home-cooked meals, home repairs and Facebook page help.” Reader Dan passes along some of his interesting research on how the IRS views this.

I did a bit of digging, because I couldn’t believe that the government would let something like this exist without taxing it.  Historically the IRS have determined that these voluntary organizations were *not* barter brokers for the following three reasons:

1. An hour is always an hour, regardless of what is offered
2. They are backed only by a moral obligation and are not legally binding
3. Their purpose is charitable.

One interesting assertion is that barter brokers are subject to taxation, even if they receive no remuneration for their work.  The IRS finding goes to great lengths to avoid and declaim that the time bank organizers are barter brokers, when that is precisely what their function is in a de facto sense.

If this sort of organization sees serious uptake in the population, I expect the IRS to revisit its 15 year old ruling.  I’d be interested in seeing an analysis of the growth of such organizations in America.

7:54 pm on April 28, 2010
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