The IRS has issued three local rulings that Time Dollars (Service Exchanges) are tax exempt. They have given three reasons for this status.
An hour is always an hour, regardless of what is offered
They are backed only by a moral obligation and are not legally binding
Their purpose is charitable (voluntary contributions)
Actual Tax Exempt rulings: AUTHORIZED FOR EDUCATIONAL USE ONLY Copr. (C) West 1996 No claim to orig. U.S. govt. works PLR 9608009 1996WL76443(I.R.S.) Internal Revenue Service (I.R.S.) Private Letter Ruling
Issue: February 23. 1996 November 9. 1995
Section 6045 — Returns of Brokers 6045.00-00 Returns of Brokers CC:DOM:IT&A:1/TR-31-1587-95 LEGEND
Dear *** This ruling is in response to the request for a ruling dated June 20, 1995, concerning whether X, which sponsors a Time Dollar program, is a barter exchange under section 6045 of the Internal Revenue Code and section 1.6045- 1(a)(4) of the Income Tax Regulations. X is a nonprofit corporation that sponsors a program through which it supports and coordinates the exchange of services among residents in the Y neighborhood and surrounding neighborhoods. The purpose of the program is to strengthen the community and to increase access to services and resources for all in the community. X maintains a file of services that members are willing to provide, matches service providers and service recipients, and maintains accounts of hours of service provided under the program. All services are valued equally under the program: one hour of service equals one good neighbor point. Participants in the program commonly provide services such as housekeeping, babysitting, gardening, and errand running. The definition of a member of the program is a participant who has completed the application, interview, orientation, and reference check process. X does not charge a fee for participation or membership in the program. Members may earn points, within limits, for work in operating the program. X does not have a staff person that receives monetary compensation. A person may request services through the program by calling or visiting Xs office. After X receives a request for services, it looks for a match based on the service requested, time needed, proximity, and other factors. X then contacts a potential provider for availability. Upon accepting a referral, the service provider is responsible for calling the service recipient and arranging the time and place of service. After the service is provided, either the service provider or the service recipient reports the hours of service to X. X then credits the provider’s account and debits the recipient’s account for the hours of service. Although a member may use accumulated points at any time, X encourages members to use their points when needed. The taxpayer does not guarantee that a member will be able to receive services for accumulated points. Members cannot transfer points or sell points except that members may donate points to other members in the member’s immediate family or household. In unusual circumstances, X may deny a request for service from a participant with a debit balance of 26 good neighbor points or more. Nonprofit community groups approved to participate in the program may receive good neighbor points for hours of service provided by the group’s members and use those points to obtain services. Members who are self-employed cannot use points to obtain services for their businesses. Section 6045 of the Internal Revenue Code states the general rule that every person doing business as a broker shall, when required by the Secretary, make a return, in accordance with such regulations as the Secretary may prescribe, showing the name and address of each customer, with such details regarding gross proceeds and such other information as the Secretary may by forms or regulations require with respect to such business. Section 6045(c)( I )(B) of the Code states that the term “broker” includes a barter exchange. Section 6045(c)(3) of the Code defines the term “barter exchange” as any organization of members providing property or services who jointly contract to trade or barter such property or services. Section 1.6045- l(a)(4) of the Income Tax Regulations states that the term “barter exchange” means any person with members or clients that contract either with each other or with such person to trade or barter property or services either directly or through such person. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis. As explained below, we conclude that X is not a barter exchange within the meaning of section 6045(c)(3) because X’s operations provide a means for the informal exchange of similar services on a noncommercial basis and do not result in the creation of contractual rights and obligations among members (or between members and X) for the exchange of property or services. One element to be considered in determining whether an organization is a barter exchange is the types of services provided by the organization’s members. See section 1.6045- l(a)(4). In the present case, the services provided by X’s members are primarily domestic or personal services. Thus. X’s operations facilitate the exchange of similar services in accordance with section 1.6045-1 (a)(4). Other elements to be considered in determining whether an organization is a barter exchange are whether services are exchanged on a commercial or noncommercial basis and whether the exchange of services is formal or informal. See section 1.6045-l(a)(4). The application of these criteria to X is discussed below. X facilitates the exchange of services on a noncommercial basis as evidenced by the following considerations. First, all services receive a point value based solely on the number of hours of service provided without regard to the type of service. Second, a member who has performed services does not thereby have a contractual right to receive any services from X or from X’s members. Third, the organization does not place any limits on when services must be received. Thus, there could be a gap of several years between the time when a member provides services and the time when the member first receives services. Fourth, a member cannot assign (except to family or household members) the points that he or she has accumulated for services performed. Fifth, X is a community organization whose membership consists primarily of individuals living in the Y area. Sixth, X does not charge a fee for participation or membership in the program. Seventh, the records maintained by X show significant disparities in members’ accounts as to the number of hours of services provided and the number of hours of services received. Some members typically receive many more hours of services than they provide, while other members-who are apparently motivated by a desire to serve the community- typically provide many more hours of services than they receive. Based on X’s records as of July, i 995, there were at that time approximately a active participants over 25 percent of which have performed services but have not received any services in return, The informal nature of the exchange of services is also evident. X simply links members in need of services with other members who are potential providers of services. It is up to the members, rather than X, to determine whether any services will be performed, to determine the time and place for performance of the services, and to ensure that the services are satisfactorily performed. Also, X does not have any responsibility for crediting the account of the service provider or debiting the account of the service recipient unless a member first contacts X and indicates the number of hours of service provided. Moreover, either member (the service provider or the service recipient) can contact X to indicate the number of hours of service provided, and this information may be provided to X informally through a phone call or postcard. This ruling is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Code provides that it may not be used or cited as precedent, No opinion is expressed about the tax consequences of the program under any other provision of the Code. Specifically, no opinion is expressed concerning whether a member earns income as a result of the member’s participation in the program.
Sincerely yours, Assistant Chief Counsel (Income Tax & Accounting) By John M. Coulter, jr. Senior Technician Reviewer
This document may not be used or cited as precedent. Section 61 10(j)(3) of the Internal Revenue Code.
PLR96.08009, 1996WL 76443 (I.R.S.) END OF DOCUMENT