When does mutual help become income?

You do realize that the NSA knows who you are, SalmonEgg, don't you?

Right. It's known as a gift.

Normally that would be considered a gift, particularly between spouses. Gifts are not subject to income tax.

Depends on the relationship, but that would normally be a gift, too.

Do they have some sort of financial relationship involved with this? Or is it just brainstorming without any kind of compensation other than more brainstorming. In any event it is probably not taxable, but again it would depend on the specific facts.

They don't tap into the relationship. They get at the substance of what the payment is. If it is compensation for something tangible given in return, it may well be taxable. But not necessarily.

With the exception of a spouse, the expectation to be paid says that it is not a gift. It is barter income.

No, it is a gift to the other spouse.

A gift if there is no expectation to be compensated. (Compensation can be in any form such as money, goods or services.)

I have no idea what you mean by "helped each other out" but see the first answer.

Best answered by the NSA as I have no idea what you mean by "tap into such intimate relationships to extract revenue." The IRS has been tasked by the people to collect taxes. There are a whole slew of laws that state what they can and can not do to collect those taxes. E.g., there are a variety of rules on who has the burden of proof to substantiate filing status, income, deductions, credits, etc.

Yes, I agree, if there is an expectation that one will owe services in exchange for what the other does. But often people do things for each other out of friendship and generosity, and there is no specific quid pro quo, or even a stated expectation for something in return. In that case it would be a gift.

The devil, as they say, is in the details.

sometimes even a quid pro quo is not barter income. Consider the "time bank" schemes now in vogue (sort of).

from

The IRS has issued three local rulings that Time Dollars are tax exempt. They have given three reasons for this status.

1. An hour is always an hour, regardless of what is offered
2. They are backed only by a moral obligation and are not legally binding
3. Their purpose is charitable.

Here is are two actual situations, not hypothetical situations.

I had a fishing buddy for many years. We would split many expenses.

One year he was not doing well financially and I was. I signed up for accommodations at a fishing ranch. It would cost no more for two to stay there than it would cost for one. I invited him along. He got to fish and I got a good buddy. From my point of view now, that is quid per pro. That thought, however never crossed my mind.

At the same ranch another year, a rock punctured my gas tank that made a small leak. I took my vehicle into the closest town for repair about 20 miles. He drove there to pick me up and later repeated the drive so that I could pick up my repaired vehicle. He gave up his fishing for a few hours so that he could help me. It never crossed our minds that he would not help me out.

If these were considered taxable income, so would someone paying for their companion's meal, movie tickets, etc. when they go out on a date. Or bringing a bottle of wine when someone invites you to their home for dinner.

These things are all just gifts. You're not "buying" a good buddy, you already had a good buddy and you gave him a gift of a fishing trip. It's not like his friendship was conditional on you paying his way.

You are confirming my motivation for posting my message in the first place. I totally agree with your analysis. It is common sense. "Common sense," however, is often absent from tax code sections.

For example, in a previous post, I asked about retaining a capital gain exemption for a home. A home is often the only asset a person might have (not in my case). Nevertheless, if circumstance force someone to sell a home while having to pay substantial capital gain taxes, they would not afford to buy that home back. Taxes on inflated value would make that impossible. The intrinsic value or utility of the property will not have changed.

To make up for that bit of "uncommon sense," in the code, there are other patches in the code. Each one of these patches has its own bit of uncommon sense. Inflation is a hidden tax that eats away at people without equity assets. In my opinion, the Fed goal of "moderate" inflation (read quantitative easing or printing money} is a kicking the can down the road. Democrats and Republicans both like inflation because it is a hand in peoples' pockets that most people cannot feel.

This does not pass the 'Duck' test, in my opinion. When I help a friend with some project and he returns the favor, that's simply what good friends do. (As the saying goes, "a good friend will help you move, a great friend will help you move a body.") Organized barter crosses the line. If I 'help' my electrician do his taxes, and a month later, he installs a subpanel in my basement, it prompts the question, at what point is the line crossed? That timebank seems to have gone well over the line. (of course, in my opinion)

Where it probably becomes tricky is when you happen to be good friends with people you do business with. For instance, I think my father's lawyer was someone he'd been friends with since childhood. I expect that he gave informal legal advice off the books, and my father (who ran our family's housewares business) probably gave him kitchenware (mostly from the damaged/returns bin, where we also got much of our own housewares from).

But what distinguishes this from real barter is that there was no specific compensation. There was no expectation that a particular bit of legal advice would result in a certain number of pots and pans. They both just gave each other what they needed when they needed it and felt like it. That's what makes these gifts, not trade -- in a trade, you generally agree on the compensation ahead of time, and you're expected to follow through as agreed. There's either an explicit or implied contract, and no such thing exists when friends just help each other out.

I agree, but the IRS has held these "time exchanges" are not barter. It is only a matter of time until such exchanges loose even the appearance of being "backed only by a moral obligation" - and just wait until the freeloaders learn of these exchanges.

But I really have to laugh at the concept that "an hour of someone's time is worth an hour of someone else's time" without regard to skill, experience, etc. No way I would spend an hour of MY time for someone to pull weeds for only an hour.

On 2014-01-30 12:10, Salmon Egg wrote: [...]

Sorry, you totally lost me in the paragraph above. Assume there was no inflation at all, if it makes easier to explain. Why would we assign a value to an asset without taking into account the deferred taxes due on the unrealized gain? Comparing a property sold with deferred tax due to a similar newly purchased property with no tax due doesn't prove anything.

How do you figure that inflation doesn't "eat away" at people *with* equity assets? A large chunk of the gain on many assets held for a long time is due to inflation. Actually, the person with income solely from wages is far less likely to pay a "hidden inflation tax".

And why would you limit your view to just tax effects? Doesn't everyone who borrows money also like inflation? (which is more likely the real reason why politicians like it).

: Where it probably becomes tricky is when you happen to be good friends : with people you do business with. For instance, I think my father's : lawyer was someone he'd been friends with since childhood. I expect that : he gave informal legal advice off the books, and my father (who ran our : family's housewares business) probably gave him kitchenware (mostly from : the damaged/returns bin, where we also got much of our own housewares : from).

: But what distinguishes this from real barter is that there was no : specific compensation. There was no expectation that a particular bit of : legal advice would result in a certain number of pots and pans. They : both just gave each other what they needed when they needed it and felt : like it. That's what makes these gifts, not trade -- in a trade, you : generally agree on the compensation ahead of time, and you're expected : to follow through as agreed. There's either an explicit or implied : contract, and no such thing exists when friends just help each other out.

: -- : Barry Margolin : Arlington, MA

Where do things like baby sitting froups who sit for a kid in excchange for a similar amount of time of their sitting for you, or even more complicated ones where A may sit for b's baby and b may sit fo D's baby sot C now will sit for A's baby etc. sme ofthese groups can have fairly complicaed scheduling with not only hours but times of day o wek factored in.

Also food coops where you give a certain number of hours in return for a lower price on purchased food? Is the discount taxible income? or the average price of a baby siter times the hours you sat?

Wendy Baker

Getting down to basics, consider that you have a $1 can of beans that will keep forever until used. Some time later, such a can of beans costs $10 because of inflation. Assume it still takes you the same amount of effort to earn the money to buy those beans. If you eat the beans, you get $10 worth of beans at that time but with exactly the same food value it had when it cost $1. If circumstances force you to sell the beans at market value, you end up with $10 less, say $2, for tax on the capital gain of $9. The very next day you cannot buy that can of beans for the $8 you are able to spend.

On 2014-01-31 11:04, Salmon Egg wrote: [...]

In your original house example, I wasn't assuming all the gain was due strictly to inflation. Usually real property becomes more valuable because there is growing demand, but only a fixed supply.

All your new example says to me is that "inflation is a hidden tax that eats away at people WITH equity assets", contrary to what you previously said.

I guess I could get carried away and say that you eating your own ancient can of beans imposes no burden on society, and so there is no reason to tax the financial gain. But you selling that same can of beans now requires all the trappings of a legal system, infrastructure, legal tender, etc and so should be taxed. Yes, there is a cost to transactions, whether it's tax, sales commission, advertising, or anything similar -- so even without tax, you'd never come out exactly the same at the end of the transaction.

That is clearly not a gift. Technically those are probably taxable barter. However the numbers are likely so small that nobody is going to challenge it.

Price reductions are generally not considered income. In a case like this, I suppose it might be possible to make an argument that it could be taxable. After all, when you get stock in a company in exchange for services, for example, the value of the stock is taxable. But since the member gets nothing tangible other than a price reduction, and it is not for business purposes but for personal use, I'd think it would be very unlikely that the IRS would try to tax it.

: In your original house example, I wasn't assuming all the gain was due : strictly to inflation. Usually real property becomes more valuable : because there is growing demand, but only a fixed supply.

: All your new example says to me is that "inflation is a hidden tax that : eats away at people WITH equity assets", contrary to what you previously : said.

I seem to recall being taught somewhere many years ago, that that was one of the main reasons for the lower tax on long term capital gains. a realization that some portion of the gain was inflation over time. Of course, it was not implemented graduated fashion so that tax rate on say,

1 year woudl be higher than on 5 years, etc.

Wendy Baker

I heard a similar rationale given. I doubt the rationale has any legal standing. Even if the capital gain exemption is a sop to cover the effects of inflation, why should I lose it if circumstances force me from the home?

If we were on a true gold standard, my guess is that on average houses would be worth the same amount of gold when the fluctuations are smoothed out. who would have thought, when we completely divorced the dollar from gold during the Nixon administration, that people would use pennies as a copper source. They now are even valuable enough to be used as a source of zinc.

The poorest amongst us do not see their savings accounts suffer from the hidden tax of inflation. They have no such accounts. They suffer because their effort ends up getting reduced in value when wages do not keep up with inflation.

The inflation tax hits the next rung up who do have savings accounts that diminish in value in time. That is the hidden tax.