## Facts

- David A. Rooney, Richard A. Plotkin, and Grafton H. Willey IV were partners in a certified public accounting firm; the Rooneys and Plotkins filed joint returns with their spouses.
- For the 1981 tax year, the firm billed clients for accounting services, but several clients became delinquent.
- To reduce outstanding receivables, the firm accepted goods and services from delinquent clients (e.g., local businesses) instead of cash.
- The firm reduced clients’ unpaid accounting bills as goods and services were received by the partners.
- The Commissioner treated the partners as receiving income equal to the prices normally charged by the clients to retail customers for the goods and services transferred.
- The partners reported less income, discounting the retail prices based on their own assessment that the items were worth less to them than the stated retail amounts.
- The Commissioner determined income tax deficiencies for 1981; after concessions, the remaining dispute concerned only the valuation of the barter receipts.

## Issues

1. Whether an accounting partnership may compute income from goods and services received for accounting services by discounting retail prices based on the partners’ subjective valuation.
2. Whether, under I.R.C. § 61, the fair market value of noncash compensation must be determined using an objective market-based measure such as normal retail prices.

## Decision

- The Tax Court held for the Commissioner.
- The court ruled that an objective measure of fair market value must be used to value compensation received in goods or services.
- The partners were required to include in income their shares of the normal retail prices of the goods and services received by the partnership.
- The partnership could not reduce gross receipts through subjective discounts based on the partners’ personal views or motivations.

## Legal Principles

- Gross income under I.R.C. § 61 includes compensation for services, whether received in cash, property, or services.
- When services are paid for with property or services, the amount included in income is the fair market value of what is received.
- Fair market value is determined by objective market evidence, not by the taxpayer’s individualized assessment of worth.
- Retail prices charged to other customers may provide a readily ascertainable objective measure of fair market value for goods and services received in barter transactions.

## Conclusion

The Tax Court required the partners to report barter receipts at objective fair market value, using normal retail prices, and rejected valuation discounts based on the partners’ subjective determinations of what the received goods and services were worth to them.


Rooney v. Commissioner, 88 T.C. 523 (1987)