Tree of Plenty TimeBank and Taxes

IRS ruling where TimeBank was determined not to be a barter exchange

From IRS PLR 9608009 (February 23, 1996)

It was significant that:

  1. Participants had no contractual right to receive services in exchange for favors they do for others,
  2. Services were not bargained for at market rate, but were provided on an hour-for-hour basis, without regard to the market value of such services.

Evidence that the TimeBank is noncommercial

(From IRS PLR 9608009, February 23, 1996)

*First, all services received 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 exchange or from the TimeBank’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 Time Credits that he or she has accumulated for services performed.

*Fifth, the TimeBank is a community organization whose membership consists primarily of individuals living in the members area.

*Sixth, the TimeBank does not charge a fee for participation or membership in the program.

*Seventh, the records maintained buy the TimeBank show significate 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 that they provide, while other members who are apparently motivated by a desire to serve the community typically provide many more hours of service that they receive.

Evidence that the TimeBank is informal

(From IRS PLR 9608009, February 23, 1996)

*the TimeBank simply links members in need of services with other members who are potential providers of services. It is up to the members, rather than TimeBank to determine whether any service will be performed, to then determine the time and place for performance of the service, and to ensure that the services are satisfactorily performed.

*Also, the TimeBank 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 the TimeBank and indicates the number of hours of service provided.

*Moreover, either member (the service provider of the service recipient) can contact the TimeBank to indicate the number of hours of service provided, and this information may be provided to the TimeBank informally through a phone call or postcard.

Can people exchange goods through a TimeBank, without causing the TimeBank to become subject to the rules of a barter exchange?

This is an IRS Private Letter Ruling (PLR). It’s not exactly law that you can cite as a precedent.

From Internal Revenue Service, Department of the Treasury, Washington, DC 20224. Third Party communication; None Date of Communication. Person to contact: Cynthia McGreevy, ID No. 50-25296. Refer: Reply to CC:PA:AP JP:01, PLR 139766-06, February 2, 2007.

The TimeBank maintains a computerized file of services that members are willing to provide, provides the names of service providers to service recipients when asked, and maintains accounts of hours of service provided under the program. All services are valued equally under the exchange; one hour of service equals one unit of credit, referred to as credit. Upon completion of services or the exchange of goods, the member providing the goods or services will contact the TimeBank. The TimeBank will enter a credit on the account of the member providing the goods or services and enter a debit on the account of the recipient.

Members in the TimeBank commonly provide services such as childcare, housecleaning, home maintenance, music lessons, or other personal services, including medical consultation and exams, massage, and other holistic treatments. Some members also offer tangible items, tickets, or discounts from menu items at certain restaurants for which member can exchange. The TimeBank does not guarantee that a member will be able to use accumulated credit or receive any goods or services. Members may donate credits to other members.

Income: With some exceptions, gross income is taxed, whether it comes in the form of money, property, or service. Treas. Reg 1.61-1
Barter: The value of something received through barter is income, and is therefore taxed, with some exceptions. IRS Publication 525
Gifts: Gifts are generally not counted as part of gross income, and are therefore not taxed for the recipient, with some exceptions. 26 USCS 102
Commissioner V. Duberstein 363 U.S. 278,285 (1960)

*Gifts arise from generosity: “A: A gift […] proceeds from a thatched and disinterested generosity, out of affection, respect, admiration, charity, or like impulses.”

*Gifts don’t come from a moral or legal obligation: If a payment proceeds primarily from the constraining force of any moral or legal duty, […], it is not a gift.”

*Gifts are not given with an anticipation of return: “If a payment proceeds […] from the incentive of an anticipated benefit or an economic nature, it is not a gift.”

*Gifts are not given as a payment for something: “Payment made in return for services rendered is not a gift.”

*The intention of the giver is what matters: “In determining whether a transfer of property is a gift, […] the controlling factor is the intention with which the transfer […] has been made.

What about taxes? Isn't this just like barter? Won't members be taxed on the Time Credits earned?

The IRS views exchanging as "the provision of friendly neighborly favors" based on the currency of time.

By Dr. Edgar Cahn

The IRS has ruled on two occasions that TimeBanks are not commercial barter exchanges and create no contractual rights.

The first, made by a regional office of the IRS, involved the state sponsored program operated in Missouri. The IRS stated that there will be no taxable consequences to volunteers who earn credits as reimbursement for services rendered. This ruling focused on the charitable nature of the organization, the charitable class served by the program, the fact that the organization was not a commercial for-profit barter club and the fact that any qualifying person would receive such services without regard to cost. 

The second ruling was a private ruling covering a program expressly established to generate exchanges among members. The central reason given for the ruling was that the credits were used primarily to motivate members and that no contractual rights arose when one earned a credit or owed a credit. It is significant to note that the ruling contemplated labor contributed by a skilled tradesman, a painter, but noted that all hours were valued as equal, regardless of market value, and that the primary purpose of the credits was clearly to motivate members. Moral persuasion was the only means of prodding a member to eliminate a debt.

The ruling drew a distinction between commercial barter exchanges where barter credits can be purchased, where outstanding debts can be eliminated by cash payments, where a commission is charged for each exchange, and where the motive of all parties is profit. In such situations, all members enter a legally enforceable contractual obligation.

The ruling drew upon a concept in tax law called “imputed income.” There are certain situations where we earn a benefit, yet are not taxed. When we produce something for our own consumption, we are not taxed on it - even though we receive benefit as a result of our own labor. The services that spouses or children provide for each other such as doing the dishes, cutting the lawn, or taking out the garbage are also exempt from gross taxable income. The fact that it is possible to hire someone to do these things, and therefore assign a cash value to these activities does not alter the fact that when performed by family members, they are not taxable income.  

The imputed income concept usually applies to informal exchange of similar services on a noncommercial basis to exempt the kinds of services that one does for oneself or one's family. It is invoked in situations where some or all of the following considerations come into play: exchange of similar services: absence of any contractual obligation to repay a debt, reliance on moral suasion to collect debts, predominance of services of the type generally performed by family members, the existence of permanent debtors in the exchange, the use of time rather than market value as the unit of measurement.

When a relative comes to baby-sit, when a PTA contributes to a school, visits to hospitalized members of a congregation, participation in a car pool, we also receive benefits from others that the IRS does not treat as taxable income. It is possible to view the TimeBank credits as an extension of the carpool. The family, car pool buddies, members of a charity or religious congregation all represent expanding concentric circles of the non-market economy.

The IRS distinguished Time Dollar programs from commercial barter clubs on the following grounds: the absence of a commission charged by the organization, cash cannot be used to purchase credits or to eliminate a debt, the predominance of like-for-like services in the exchange, and the equal valuation given to all hours. While there is no guarantee that the IRS will not reconsider its position at some future time, it seems highly unlikely. The non-contractual nature of the exchanges; the charitable purposes advanced; and the focus of the program on rebuilding family, neighborhood, and community all make it unlikely that Time Dollars will be treated as taxable income.