Posted 11/14/2012 21:20 (#2697570 - in reply to #2696558) Subject: Re: Grain for Gold trade?
Kossuth county, Iowa
I found this, but still can't tell if it's possible. I'd think they'd both be concidered commodities (like kind property)?
Some barter deals are tax-free or tax-deferred.
Gift exchanges. In a gift exchange, I am giving you (for example) a bracelet because you are my friend, and you are giving me your lawnmower as a kind gesture. The difference between a gift and a barter deal is the intent: when we give a gift, we do not intend to receive anything directly in return -- but in a barter deal, our supposed "gift" is actually half of a commercial transaction. The Supreme Court has defined the word: "A gift in the statutory sense proceeds from a detached and disinterested generosity out of affection, respect, admiration, charity, or like impulses." Tom Glynn, assistant to the IRS Commissioner in Washington, has said that the IRS doesn't tax "neighbors doing favors for each other"; he said that he would not expect us to report a favor in which we tend our friend's lawn and he paints our house in exchange. However, we need to be careful even with these neighborly swaps. Where do we draw the line? If we can trade a handful of lettuce as a gift without having to pay taxes, what about a bucket-full of lettuce, or 10 bushels of lettuce? In at least one case, the issue of "gift exchanges" has gone to the Supreme Court; in The Commissioner of Internal Revenue vs. Duberstein in the 1950s, a certain Duberstein failed to convince the Court that his exchanges were indeed gifts. After he gave his friend Berman some valuable business advice, Berman reciprocated with a gift of a Cadillac. Duberstein had not expected or requested the car, so he considered it to be a tax-free present, and therefore he did not report it on his 1951 tax forms. But the Court expressed a different view, saying that "despite the characterization of the transfer of the Cadillac by the parties and the absence of any obligation, even of a moral nature to make it, it was, at bottom, a recompense for Duberstein's past services, or an inducement for him to be of further service in the future."
Like-kind exchanges. The goods are "of a like kind"; for example, we are trading real estate for real estate, or a tractor for another tractor. The IRS explains these tax-free exchanges in Section 1031 of the IRS Code: "No gain or loss shall be recognized if property held for productive use in trade or business or for investment (except stock or securities) is exchanged solely for property of a like kind to be held either for productive use in trade or business or investment." Some fine points:
This is a tax-deferred exchange, not a tax-free exchange. There is no tax on the item when we acquire it by bartering -- but if we ever sell it for cash, we will pay a tax.
We cannot create a tax-deferred exchange of personal property for property which is to be used for trade, business, or investment. "Like kind" refers to the way in which the property is used, not the type of property itself.
The IRS makes many distinctions in like-kind exchanges. For example, the IRS differentiates between Krugerrands and numismatic gold coins (like an old $20 gold piece).