Rev. Rul. 80-52

1980-1 C.B. 100, 1980-8 I.R.B. 12.

                       Internal Revenue Service
                                 Revenue Ruling

                            BARTER CLUB TRANSACTIONS

                          Published: February 25, 1980

26 CFR 1.451-1: General rule for taxable year of inclusion.

(Also Sections 61, 162, 262, 263, 3121, 3306, 3401; 1.61-1, 1.61-2, 1.162-1, 1.262-1, 1.263(a)-1, 31.3121(a)-1, 31.3306(b)-1, 31.3401(a)-1.)

  Barter club transactions. A barter club uses credit units to credit or debit members' accounts for goods or services provided or received. As soon as units are credited to a member's account, the member may use them to purchase goods or services or may sell or transfer the units to other members. The value of credit units received is includible in the gross incomes of members for the taxable year in which the units are credited to their accounts. The dollar value of units received for services by an employee of the club, who may use the units in the same manner as other members, is includible in gross income for the taxable year in which received and is wages for purposes of the FICA, the FUTA, and income tax withholding.

ISSUE

  What is the amount includible in gross income as a result of the bartering transactions described below, and when is the amount includible in gross income?

FACTS

  A and B are both members of a barter club. The barter club operates as a vehicle for the exchange of property and services among the members.  The club uses 'credit units' as a medium of exchange and makes available to members information concerning property and services other members are offering for exchange.  The club debits or credits members' accounts for goods or services received from or rendered to other members. Exchanges are made on the basis that one credit unit equals one dollar of value.  The rules of the club require that the value placed on goods or services exchanged be equal to the member seller's normal retail price.  The transfer of credit units between members is accomplished by various source documents, such as invoices, and the club charges the member purchaser a 10 percent commission payable in cash on barter purchases.  Any barter transaction between members is reflected in the form of bookkeeping entries on the books and records of the club.  The club does not guarantee that a member will be able to use all of that member's credit units and does not pay a member cash for any credit units not used.  However, a member's credit units can be used immediately to purchase goods or services offered by other members of the club, and the member may transfer or sell the member's credit units to another member of the club.

  Situation 1. Both A and B use the cash receipts and disbursements method of accounting.  Through the club, A bartered to B for 200 credit units services that A would normally perform for $200.  During the same taxable year, B bartered to A for 200 credit units services that B would normally perform for $200.

  Situation 2. C is an employee of the barter club.  During the taxable year, C, who uses the cash receipts and disbursements method of accounting, received from the club in exchange for C's services gross wages of $20,000, $10,000 in cash and 10,000 credit units.  C is entitled to use the credit units in the same manner as other members of the club. However, the club does not charge C a commission on C's barter purchases.

LAW AND ANALYSIS

  Section 61 of the Internal Revenue Code and regulations thereunder provide that, except as otherwise provided by law, gross income means all income from whatever source derived.

  Section 1.61-1 of the Income Tax Regulations provides, in part, that gross income includes income realized in any form, whether in money, property, or services.

  Section 1.61-2(d)(1) of the regulations provides that, if services are paid for other than in money, the fair market value of the property or services taken in payment must be included in income as compensation.

  Sections 3121(a), 3306(b), and 3401(a) of the Code provide that the term  'wages' means all remuneration for services performed by an employee for the employee's employer, including the cash value of all remuneration paid in any medium other than cash.

  Section 451 of the Code provides that the amount of any item of gross income is includible in the gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different period.

  Section 1.451-1(a) of the regulations provides that income is includible in gross income for the taxable year in which it is actually or constructively received by the taxpayer, unless it is includible in a different year in accordance with the taxpayer's method of accounting.

  Rev. Rul. 70-331, 1970-1 C.B. 14, concerns 'prize points' that are earned by salespersons and are redeemable for merchandise prizes listed in a catalog. That revenue ruling holds that the fair market value of the prize points awarded to a salesperson who uses the cash receipts and disbursements method of accounting is includible in the salesperson's gross income when the prize points are paid or otherwise made available to the salesperson, whichever is earlier. The prize points in Rev. Rul. 70-331 and the credit units in this revenue ruling both represent payment for services in a form other than money.

  In this case A, B, and C received income in the form of a valuable right represented by credit units that can be used immediately to purchase goods or services offered by other members of the barter club.  There are no restrictions on their use of the credit units because A, B, and C are free to use the credit units to purchase goods or services when the credit units are credited to their accounts.

HOLDINGS

  Situation 1. A and B must include $200 in their gross incomes for the taxable year in which the credit units are credited to their accounts. If A and B were merchants who used the accrual method of accounting and bartered goods to one another, $200 would be includible in their gross receipts.

  Situation 2. C must include $20,000 in C's gross income for the taxable year.  For federal employment tax purposes, the $20,000 is wages under sections 3121(a), 3306(b), and 3401(a) of the Code.

  If the commission paid to the barter club by a member purchaser was paid to acquire an item for use in connection with the member purchaser's trade or business, the amount of the commission is deductible as a business expense under section 162 of the Code, provided the item received in the barter transaction meets the requirements of that section.  If the commission was paid to acquire a capital item, the amount of the commission must be capitalized pursuant to section 263.  If the commission was paid to acquire an item for personal purposes, the amount of the commission is not deductible, pursuant to section 262.

  Where members of a barter club exchange goods and services directly with one another and no credit units are received, see Rev. Rul. 79-24, 1979-1 C.B. 60.

Rev. Rul. 80-52, 1980-1 C.B. 100, 1980-8 I.R.B. 12.