IRS eases reporting burden for Web ad bartering

The Internal Revenue Service today issued an interim rule that will ease the tax reporting burden for "middleman" organizations that arrange the barter of banner ads on Web sites.

Notice 2000-6, available on the IRS Web site, amends Section 1.6045 of the Income Tax Regulations. Those regulations currently require organizations that facilitate barter to assign a value to the products or services bartered and report that to the IRS.

But the rise of the Internet and Web advertising has brought with it barter-facilitating companies that may deal with thousands of Web sites and organize swaps of millions of banner adds daily, each of which may be worth only a fraction of a cent. Sources close to the process say the IRS recognizes that the old requirement to report on each such transaction would place an impossible burden on the facilitating organizations.

The new rule exempts from the reporting requirements any bartering transaction involving property or services worth less than $1, effectively excluding most Internet advertising. The IRS also announced it won't impose penalties on past barter exchanges that fell below the $1 threshold.

"The reporting burdens should not outweigh the benefits of collecting information on transactions with minimal value," explained IRS Commissioner Charles O. Rossotti.

Notice 2000-6 doesn't mean that the IRS won't tax these barter transactions; it affects only the reporting process. Furthermore, the rule covers only organizations that act as "middlemen" in arranging barter. It doesn't affect direct barter between two companies or individuals.

The IRS is attempting to grapple with a number of related e-commerce issues such as the use of aggregate rather than transaction-by-transaction reporting of Internet bartering. Notice 2000-6 invites comments on these and other tax issues associated with e-commerce transactions.

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