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TEFRA Reporting Obligations

In the United States, Barter Exchanges are defined as third-party record keepers under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and as such are subject to Internal Revenue Service (IRS) Form 1099-B reporting for the annual gross barter sales of the barter exchange’s members.  As a result, barter exchanges are also subject to IRS imposed Civil Penalties for non-matching Tax Identification Numbers (TINS) and therefore must comply with Publication 1281 B-Notice solicitation requirements where non-matching Tax Identification Numbers (TINS) have occurred.

IRTA Works With The IRS

IRTA’s Executive Director, Ron Whitney has served on the IRS’s business advisory committee, known as the Information Reporting Program Advisory Committee (IRPAC) from 2007 thru 2009.  Ron has been instrumental in resolving problems related to the IRS non-matching TIN issue and has worked with dozens of barter exchanges across the U.S. to help them obtain abatements for proposed IRS Civil Penalties resulting from non-matching TINS.

Ron Whitney also has helped the IRS re-write their www.irs.gov website sections that pertain to the Modern Trade and Barter Industry.  Such website revisions were implemented in the Spring and Summer of 2009 and Mr. Whitney, at the IRS’s request, sent a mass email to all known U.S. barter exchanges asking them to place the new, revised IRS website sections on their own websites so as to educate their members on IRS barter tax reporting requirements.  A copy of Mr. Whitney’s email, with the suggested barter exchange website links is listed below, and IRTA recommends all U.S. exchange owners comply with the recommendations made therein:


April 23, 2009

Dear Modern Trade and Barter Industry Member:

IRTA has been working with the IRS to update their www.irs.gov website sections that pertain to the barter industry.  As a result, many new and positive changes have been made to the IRS website barter sections.

In an effort to improve the overall education level, and to minimize non-compliance matters related to barter tax reporting, the IRS has requested IRTA to ask barter exchange owners to put the new IRS website sections concerning barter on their individual websites.

The first set of website links listed below is titled "Links for Exchange Members".  We suggest you post all four of these links on your website since they provide helpful IRS barter information for your exchange members and/or prospects

A second grouping titled “Links Exchange Owners Need to Understand” are links containing important information that you as exchange owners need to be aware of, but do not need to be posted on your website since they apply specifically to exchange owner's IRS reporting requirements.

We suggest that you cooperate with the IRS's recommendation and post the "Links for Exchange Members" on your website.  By doing so you will be increasing the knowledge level of your members regarding IRS barter reporting, while also positioning your exchange as a credible authority on IRS barter issues.  We also trust you will find the "Links Exchange Owners Need to Understand" helpful and enlightening.

Please feel free to call Ron Whitney at IRTA at 757-393-2292 if you have any questions, or email Ron at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Thank you for your time and attention.

LINKS FOR EXCHANGE MEMBERS:

Do You Barter?

http://www.irs.gov/newsroom/article/0,,id=205581,00.html

Bartering Tax Center

http://www.irs.gov/businesses/small/article/0,,id=187920,00.html

Bartering Income

http://www.irs.gov/businesses/small/article/0,,id=187904,00.html

Tax Responsibilities of Barter Participants

http://www.irs.gov/businesses/small/article/0,,id=188095,00.html

II. LINKS EXCHANGE OWNERS NEED TO UNDERSTAND:

Barter Exchanges

http://www.irs.gov/businesses/small/article/0,,id=113437,00.html

Topic 420 - Bartering Income

http://www.irs.gov/taxtopics/tc420.html

Tax Requirements for Barter Exchanges

http://www.irs.gov/businesses/small/article/0,,id=188094,00.html

Backup Withholding "B" Processes

http://www.irs.gov/businesses/small/article/0,,id=98151,00.html

Taxpayer Identification Number (TIN) Matching Program

http://www.irs.gov/govt/tribes/article/0,,id=131207,00.html

Publication 1281: Backup Withholding For Missing And Incorrect Name/TIN(S)

http://www.irs.gov/pub/irs-pdf/p1281.pdf

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IRPAC’s 2009 Public Report was released on October 28, 2009, and the full report related to the barter industry is listed below:

D. Barter Exchange Education, Back-up Withholding and “B” Notice Requirements

Recommendations

IRPAC recommends follow-up for the results of two studies:

  1. For the abatements granted to barter exchanges for non-matching Taxpayer Identification Numbers (TIN) civil penalties, and
  2. For instances where non-matching TIN penalties have been assessed without appropriate notice being sent.

IRPAC recommends continued openness to accept “as needed” revisions to Barter Topic 420 and IRS.gov website sections relating to barter exchange. IRPAC also recommends the IRS continue to encourage the modern trade and barter industry to place the IRS.gov barter exchange link and other pertinent IRS information on their individual websites via assistance from the International Reciprocal Trade Association.

Discussion

Barter Exchanges are defined as third-party record keepers under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and as such are subject to Form 1099-B reporting and subsequent “B” Notice solicitations for non-matching TINS. The “B” Notice, which states the payer will back-up withhold, makes an assertion that is impossible for barter exchanges to comply with since they do not control any cash accounts for their client members. In its 2007 Public Report IRPAC made three recommendations regarding this issue:

  1. That the IRS educate the barter industry through outreach programs to effectively reduce 972CG penalties.
  2. The “B” Notice be amended to provide language more pertinent to the barter industry’s inability to comply with back-up withholding.
  3. Exempt barter exchanges from back-up withholding requirements.

In 2008, the IRS concluded that recommendations #2 and #3 above would require legislative changes, which are outside the scope of the operating division’s authority. As a result, the Ad Hoc Subgroup of IRPAC worked in conjunction with the SB/SE E-Business and Emerging Issues group on the following creative new approaches to addressing the barter back-up withholding issue:

  1. A study to determine the percentage of abatements granted to barter exchanges for proposed 972CG non-matching TIN civil penalties.
  2. A study examining reported instances of where non-matching TIN penalties have been assessed without 972CG Notices of Proposed Civil Penalty letters being sent.
  3. Revision of the Topic 420 – Bartering Income and Bartering Tax Center  IRS.gov sections to make them more pertinent:
    1. Request the modern trade and barter industry post important IRS.gov barter exchange links to their individual websites to provide better education and increased compliance.
    2. Place a link on IRS.gov directing users to the March 2009 CNN news report on the modern trade and barter industry.

Ron Whitney, Ad Hoc member and Executive Director of the International Reciprocal Trade Association, submitted revisions to the barter sections of the IRS.gov website in 2009 that were approved and implemented by the Service. Further, Mr. Whitney sent a mass email in the Spring of 2009 to all known barter exchange companies advising them to post the newly revised IRS.gov barter section links on their individual websites to improve education and compliance. Similar email communications will take place in the future as additional website revisions are completed. Lastly, the CNN news segment link on the IRS.gov website is expected to be operational by October 2009.