As the owners of Premier Barter, a local barter exchange in Phoenix, AZ, it is not unusual for us to hear from potential new members that they would love to barter so they don’t have to pay taxes on their transactions. Their smile typically fades away when we explain to them that the IRS treats barter the same as cash, and that barter exchanges are required to report all sales via 1099-B forms. Of course, after we explain the benefits of barter and how to use it as a tool to generate more cash business, their smile returns.
As a provider of barter exchange software, BCL Soft’s Barter21 processes the 1099-B’s for our member exchanges. Not all providers do this, and if they do it is typically done wrong.
This is our first year in business and we knew we needed to set up our process right from the start. We thought the way the other barter exchange management software providers submitted 1099-B information was fine. After all they had been doing it for years. But when we did our research we found the information other software providers sent to the IRS was incomplete or just wrong. What does that mean for your exchange? It means your exchange could be flagged be the IRS. And if you are audited it could mean heavy fines for you.
Here are some things that U.S. based barter exchange owners need to know:
- If your barter exchange had a total of less than 100 transactions in the year, you are not required to report to the IRS - although it is a good idea to do it anyway.
- If a member of the exchange did a minimum of $1.00 in barter transactions, you must report the sale(s) on form 1099-B.
- All business entities must receive and report 1099-B’s. Sole proprietors, LLCs, and corporations. No exceptions.
- Corporations and LLCs get a single aggregate total 1099-B for the year.
- Sole proprietors are required to get one 1099-B for each and every transaction.
- The due date for furnishing statements to barter exchange members is February 15.
The question all barter exchange owners and members must ask themselves is this – Are my earnings being properly reported to the IRS? If not, why not? The last thing any of us want to do is throw up red flags to the IRS. Check with your software provider. Find out if they have been following the rules or making up their own rules. If they make up their own rules – it is your exchange that will pay the fines to the IRS, not your software provider.
Form 1099-B is very different from a standard 1099. Don’t take my word for it. Visit the IRS website and discover all the requirements for barter exchanges. http://www.irs.gov/businesses/small/article/0,,id=188094,00.html. Pay close attention to the Penalties section.
With all of the research we did, I have to give some credit to people for helping us along the way:
- Ron Whitney of the International Reciprocal Trade Association – www.irta.com – for answering simple and complex questions, and settling an argument or two.
- Kathleen R. Lindquist, CPA – www.kathleenrlindquistcpa.com – CPA extraordinaire.
- Scott Cain of Evergreen Exchange – www.evergreenexchange.com – Thanks for reminding me of the 100 transaction rule!
Reference document http://www.irs.gov/pub/irs-pdf/i1099b_09.pdf
Happy Bartering!
