IRS: You Might as Well Swap

In a boon for online advertising, the Internal Revenue Service will allow Web sites to swap banner ads without reporting them to the federal tax-collection agency.

The ad swaps, which the IRS classifies as "barter exchanges," typically have market values of less than a penny. The exchanges, which were more common in the early years of the commercial Web, accounted for 6 percent of the $934 million in Internet advertising revenue that was collected in the second quarter of last year, according to a study performed by the Internet Advertising Bureau and PricewaterhouseCoopers. Nevertheless, under rules written in 1984, the IRS has required companies to file detailed reports on every exchange. Although few such reports were filed in practice, anonymous advertising industry representatives pushed the IRS to formally drop the rule.

That requirement was scrapped yesterday. The agency said it recognized that millions of cash-free barter exchanges of banner ads or other site content happen every day. The IRS said the exemption applied retroactively to all exchanges valued at less than a dollar that took place last year. Furthermore, the agency will forgo penalties on such exchanges prior to 1999 that haven't been reported.

"The reporting burdens - for either taxpayers or tax administrators - should not outweigh the benefits of collecting information on transactions with minimal value," said IRS Commissioner Charles Rossotti in a statement. "We welcome input from those involved in barter exchanges, and other electronic commerce or Internet services."

A spokeswoman for DoubleClick, a leading Internet advertising firm, said that the waiver would have no effect on her company, because it doesn't count banner ad swaps as revenue in the first place.

In its notice, the IRS invited public comment on potential new barter-exchange reporting regulations. Among other topics, the agency asked for advice as to whether a per-transaction exception to its requirements should apply, and whether special tax rules should apply to the bartering of electronic or Internet services.

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