A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.

The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B for all transactions unless certain exceptions are met.

Under the exceptions, barter exchanges are not required to file Form 1099-B for:

1. Exchanges through a barter exchange having fewer than 100 transactions during the year.
2. Exempt foreign persons as defined in Regulations section 1.6045-1(g) (1).
3. Exchanges involving property or services with a fair market value of less than $1.00.
4. Transaction involving corporate members or clients of barter exchange may be reported on an aggregate basis.

Forms 1099-B are due by February 28, 2005 (March 31, 2005, if filing electronically). Failure to file can result in significant penalties (Internal Code Section 6721). The penalty is based on when you file correct information return. The penalties are:

• $15 per information return if you correctly file within 30 days (by March 30 if the due date is February 28): maximum penalty $75,000 per year ($25,000 for small businesses defined below).
• $30 per information return if you correctly file more than 30 days after the due date, but by August 1; maximum penalty $150,000 per year ($50,000 for small businesses).
• $50 per information return if you file after August 1, or you do not file required information returns; maximum penalty $250,000 per year ($100,000 for small businesses.

Small businesses – lower maximum penalties. You are a small business if your average annual gross receipts for the 3 most recent tax years (or for the period you were in existence. If shorter) ending before the calendar year in which the information returns were due are $5 million or less.

Additional information is available through the links below:

• Electronic filing
• Instructions on filing Form 1099-B
• Form 1099-B
• General Instructions for Forms 1099, 1098, 5498, and W-2G

If you are a client, or member of barter exchange, and would like additional information on reporting income, consult one of the resources below:

• Letter Dated 10/22/2003 to Bartering Exchanges (PDF)
• Bartering Income Information
• What to do if you haven't received a Form 1099