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TIMEBANKINGANDTHEIRS
IRS:TimeBankingisNotCommercialBarter
EdgarCahn–TimeBankFounder
Beginningin1985,theUSIRShasruledthatTimeBankingprogramsarenot“barterorganizations”andthat
TimeDollarsarenottaxable.
Thefirstruling,madebyaregionalofficeoftheIRSin1985,involvedthestate-sponsoredprogramoperatedin
Missouri,saidthat"therewillbenotaxableconsequences"tovolunteerswhoearncreditsas‘reimbursement’
forservicesrendered.Thisrulingfocusedonthecharitablenatureoftheorganization,thecharitableclass
servedbytheprogram,thefactthattheorganizationwasnotacommercialfor-profitbarterclubandthatany
qualifyingpersonwouldreceivesuchserviceswithoutregardtocost.
Thesecondwasaprivaterulingcoveringaprogramsetuptogenerate“servicecredit”exchangesamong
members.Thecentralreasongivenfortherulingwasthatthecreditswereusedprimarilytomotivate
membersandthatno‘contractualrights’arosebyowingthem.Therulingnotedthatallhourswerevaluedas
equal,regardlessofmarketvalue,andthattheprimarypurposeofthecreditswasclearlytomotivate
members.Moralpersuasionwastheonlymeansofenforcingadebt.
Charitablepurposesincludethereliefofpoverty,theadvancementofeducationorreligion,thepromotionof
health,governmentalormunicipalpurposes,andotherpurposestheachievementofwhicharebeneficialto
thecommunity.
TheIRSdistinguishedtimemoneyfromcommercialbarterclubsonthefollowinggrounds:
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Absenceofacommission.
Cashcannotbeusedtobuycreditsoreliminateadebt.
Thepredominanceof‘like-for-like’servicesintheexchange.
Theequalvaluationgiventoallhours.
TherecanbenoguaranteethattheIRSwillnotreconsideritspositionatsomefuturetime.Allrulingsapply
onlytotheparticularpartywhoappliesfortherulingandstatethattheycannotbeusedorcitedas
precedent.Nonetheless,therationaleforthedecisionsinvolvebasicprincipleswhichareconsistentlyinvoked
insubsequent“individual”rulings.
Webelievethatthenon-contractualnatureoftheexchanges,thespecificcharitablepurposespursued,the
valuingofallhoursequally,thepotentialsavingstothetaxpayerandthefocusoftheprogramonrebuilding
family,neighborhoodandcommunitymakeitunlikelythatTimeDollarswillbetreatedas“taxableincome”or
thatlocalTimeBankswillbetreatedascommercialbarterexchanges.
Thefollowingexcerptsfroma1995rulingillustratethereasoningfoundpersuasivebytheIRS:
Section6045(c)(3)oftheCodedefinestheterm“barterexchange”asanyorganizationofmembersproviding
propertyorserviceswhojointlycontracttotradeorbartersuchpropertyorservices.
Section1.6045-1(a)(4)oftheIncomeTaxRegulationsstatesthattheterm“barterexchange”meansany
personwithmembersofclientsthatcontractwitheachotherorwithsuchpersontotradeorbarterproperty
orserviceseitherdirectlyorthroughsuchperson.Thetermdoesnotincludearrangementsthatprovidesolely
fortheinformalexchangeofsimilarservicesonanoncommercialbasis.
Asexplainedbelow,weconcludethatXisnotabarterexchangewithinthemeaningofsection6045(c)(3)
becauseX’soperationsprovideameansfortheinformalexchangeofsimilarservicesonanoncommercial
basisanddonotresultinthecreationofcontractualrightsandobligationsamongmembers(orbetween
membersandX)fortheexchangeofpropertyorservices.
Otherelementstobeconsideredindeterminingwhetheranorganizationisabarterexchangearewhether
servicesareexchangedonacommercialornoncommercialbasisandwhethertheexchangeofservicesis
formalorinformal.Seesection1.6045-1(a)(4).TheapplicationofthesecriteriatoXisdiscussedbelow.
Xfacilitatestheexchangesofservicesonanoncommercialbasisasevidencedbythefollowingconsiderations.
First,allservicesreceiveapointvaluebasedsolelyonthenumberofhoursofserviceprovidedwithoutregard
tothetypeofservice.Second,amemberwhohasperformedservicesdoesnottherebyhaveacontractual
righttoreceiveanyservicesfromXorfromX’smembers.Third,theorganizationdoesnotplaceanylimitson
whenservicesmustbereceived.Thus,therecouldbeagapofseveralyearsbetweenthetimewhena
memberprovidesservicesandthetimewhenthememberfirstreceivesservices.Fourth,amembercannot
assign(excepttofamilyorhouseholdmembers)thepointsthatheorshehasaccumulatedforservices
performed.Fifth,Xisacommunityorganizationwhosemembershipconsistsprimarilyofindividualslivingin
theYarea.Sixth,Xdoesnotchargeafeeforparticipationormembershipintheprogram.Seventh,the
recordsmaintainedbyXshowsignificantdisparitiesinmembers’accountsastothenumberofhoursof
servicesprovidedandthenumberofhoursofservicesreceived.Somememberstypicallyreceivemanymore
hoursofservicesthantheyprovide,whileothermembers–whoareapparentlymotivatedbyadesiretoserve
thecommunity–typicallyprovidemanymorehoursofservicesthantheyreceived.BasedonX’srecordsasof
July,1995,therewereatthattimeapproximately__activeparticipantsover25percentofwhichhave
performedservicesbuthavenotreceivedanyservicesinreturn.
Theinformalnatureoftheexchangeofservicesisalsoevident.Xsimplylinksmembersinneedofservices
withothermemberswhoarepotentialprovidersofservices.Itisuptothemembers,ratherthanX,to
determinewhetheranyserviceswillbeperformed,todeterminethetimeandplaceforperformanceofthe
services,andtoensurethattheservicesaresatisfactorilyperformed.Also,Xdoesnothaveanyresponsibility
forcreditingtheaccountoftheserviceproviderordebitingtheaccountoftheservicerecipientunlessa
memberfirstcontactsXandindicatesthenumberofhoursofserviceprovided.Moreover,eithermember(the
serviceproviderortheservicerecipient)cancontactXtoindicatethenumberofhoursofserviceprovided,
andthisinformationmaybeprovidedtoXinformallythroughaphonecallorpostcard.
Section6045.ReturnsofBrokers-PrivateletterRuling