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

Wednesday, April 28, 2010
Posted in category Depression Living

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.

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

  1. Iluvatar says:

    April 29th, 2010 at 2:01 am

    This was very cool; almost like hearing about several communities in the (south) smaller communities who have given up on the “green back” (the US dollar) as their medium of exchange.

    But lest we forget; there was a time when the Fed Gov did not tax wages. It has been only recently (since around 1870+) that is was legal for the Fed Gov to tax your earnings? And the way the law is phrased, in truth, ALL of your wages should not be subject to taxation. They are wages – resulting from a fair exchange of your labor services – that is tantamount to a barter exchange – NOT taxable by the FG. The wages are NOT INCOME (an example of which might be: that which you got from investments, DUH)! That was what the ORIGINAL Federal taxation was originally about… Thoughts?

  2. David says:

    April 29th, 2010 at 4:28 pm

    When I lived in New Orleans, there was an organization that was similar. I worked for a computer service company so someone could get work done on their computer or network and we would get a credit for the monetary value of the work, which could then be “spent” at any of the member businesses. You had to call the organization ahead of time and get an approval number. I have forgotten the name of the organization now.

  3. Mark Herpel says:

    May 2nd, 2010 at 3:43 pm

    I just interviewed the Edgar Cahn the creator of TimeBanking and Chris Gray the CEO of TimeBanks USA for our Community Currency Magazine. They both went into great details about the operation and goals of TimeBanking. This is perhaps the greatest idea for local economies I’ve ever encountered. When you first learn of how they work you might come to the conclusion that it is some kind of barter network but that is not true and far from it. Here is a quote from
    Edgar which addresses this issue:

    (Edgar) Time banks as a community currency was designed to take express exception to the definition of value that market price sets. Price in the market is set by supply and demand, so as a thing is more scarce it’s more valuable relative to demand and if it’s abundant it’s cheap and I realized that what that meant was that every fundamental capacity that defines us as human beings and enabled our species to survive and evolve was worthless in that pricing system. If we were going to start to value the kinds of things that human being need to do for each other, to build community, to raise children, to make democracy work, to fight for social justice we were going to have to find a way of honoring with value the work that was essential to promoting fundamental values.
    In the context within which we work it[Time Banking] sends a message of respect & equality that is a fundamental statement that will particularly will reveal across lines of race, and class or age or people who have been devalued. You can talk the rhetoric of saying I value but what Time Banking does is it says “oh you’re real about that aren’t you”. That is a very important message when dealing with teenagers, when dealing with the elderly, when dealing with people who have been disabled. It really honors who they are and the essence of who they are.

    Mark
    editor@ccmag.net
    http://www.twitter.com/pdxcurrency

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