If you want to be a middle-man for other people's barter transactions,
you're a barter exchange.
You are essentially setting points or some value system for each unit
of personal service being exchanged, right?
For instance, I provide 5 hours of babysitting and will get credits I can
use towards one haircut. Right?
You are tracking the credits of each member: Earned, used, unused.
So, yup, you'll need to place objective values on each credit and
issue 1099s at the end of each year.
And yes, people will probably have to report, as income, the personal
services they receive. But they won't be able to deduct the value of
the services they provide, because they are not in business.
Kind of a double whammy.
Now, if what you are trying to accomplish is something really and
truly and entirely an exchange of purely personal services, there may
be one way around this.
That is to outline your entire program and ask IRS to issue a private
letter ruling just for you.
Here is the procedure:
The fee to IRS will be about $275.00
Here is where to mail it:
Meet with a tax professional who understands the ramifications of
what you're trying to accomplish and have them help you write the
Private Letter Ruling request. You'll have a better chance of IRS
understanding exactly what you want to accomplish the first time,
without having to come back and forth to ask you for clarification.
Please don't go into this business without clearing up the issue
about recordkeeping and about reporting.
I think if someone writes this up properly - and everything done
really is personal (i.e. no one provides the kinds of services
for which they normally get paid), IRS might find a way to waive
having you issue a 1099.
But expect that you will still need to keep records of each person's
total barter activity for each year - just in case anything changes.
Another way to get around this is by handling transactions the way
eBay does. People post what they want to sell - other people just buy
them. eBay just provides the space in which to do it.
So if you simply set up a space where people can barter directly with
each other, and you only charge for the ad space, all you'll be doing
is selling ads. You won't be directly involved with the barter transaction.
Think about ways to structure your idea where you are not in the middle,
where you're just a place for them to meet.
Good luck. It IS an interesting idea.
For more information about real-life barter issues
Clarification of Answer by
27 Apr 2005 19:04 PDT
OK, I understand.
From what you say you're doing, yes, you'll be all right.
All the transactions are definitely between the two parties,
themselves. You're not involved at all, except to provide the space.
You should have no problem - and won't need to worry about
tracking or 1099s under the conditions you describe.
Go for it!