Thursday, July 7, 2011
Douglas A. Kahn
(Michigan) has posted Exclusion from Income of Compensation for Services and Pooling of Labor Occuring in a Noncommercial Setting
, 11 Fla. Tax Rev. ___ (2011), on SSRN. Here is the abstract
Compensation for services, regardless of the form, constitutes income to the recipient. Consequently, the exchange of services by two individuals is treated as income to each. However, there are numerous examples of an exchange of services that the IRS has never sought to tax. The most common example is an exchange of services by a married couple who divide the household chores between them. The focus of this article is to propose a principled reason for not taxing those exchanges and to explore the limits of that exclusion. The author contends that the income tax operates exclusively on commercial transactions, and so income derived from a noncommercial activity is not taxable. The article explores what types of activities can be classified as noncommercial for this purpose.
As a corollary to the proposed noncommercial rule, the article contends that the income tax does not apply to individuals who pool their labor to obtain a common goal. The resulting exchange of services are not taxable. The article considers the question of how broadly a common goal can be defined for this purpose. The article examines several specific activities in which services are exchanged and which should not be taxable. Specifically, among others the article examines: baby sitting barter clubs, cooperative nursery schools, and home schooling.