## Facts

- The IRS addressed two hypothetical exchanges involving compensation paid other than in cash under I.R.C. § 61 and Treas. Reg. § 1.61-2.
- Situation 1: A lawyer performed personal legal services for a housepainter; in return, the housepainter painted the lawyer’s personal residence.
- Situation 1 occurred through a barter club whose professional members contact each other, negotiate, and agree on the value of services exchanged.
- Situation 2: An apartment-building owner provided an apartment to a professional artist rent-free for six months.
- In Situation 2, the artist provided a work of art to the apartment owner in exchange for the rent-free use.

## Issues

1. Whether professionals who exchange services through a barter arrangement must include in gross income the fair market value of the services received.
2. Whether an apartment owner who provides rent-free use of an apartment in exchange for artwork must include the artwork’s fair market value in gross income, and whether the artist must include the apartment’s fair rental value in gross income.
3. How fair market value is determined when services are exchanged at a negotiated or stipulated price.

## Decision

- Situation 1: Both the lawyer and the housepainter must include in gross income the fair market value of the services each received.
- Situation 2: The apartment owner must include in gross income the fair market value of the artwork received.
- Situation 2: The artist must include in gross income the fair rental value of six months’ use of the apartment.

## Legal Principles

- Gross income under I.R.C. § 61 includes compensation for services regardless of whether payment is made in cash, property, or services.
- Under Treas. Reg. § 1.61-2(d)(1), when services are paid for other than in money, the fair market value of the property or services received must be included in income.
- If services are rendered at a stipulated price, that price is presumed to represent the fair market value of the compensation received absent evidence to the contrary.
- In barter exchanges, each party generally realizes taxable income measured by the fair market value of what that party receives, producing symmetric inclusion for both sides of the exchange.

## Conclusion

Noncash exchanges, including barter of services and exchanges of property for rent-free use, create taxable gross income for each recipient equal to the fair market value of the services, property, or use received, with stipulated prices serving as a rebuttable proxy for fair market value.


Rev. Rul. 79-24, 1979-1 C.B. 60 (1979)