Barter-exchange clearinghouse has no separate broker-reporting duty

Plain-English summary

A clearinghouse operated a marketplace that let members of separate barter exchanges trade with one another using a common trade-credit currency. The ultimate buyers and sellers were members of their own exchanges, not members of the clearinghouse. Each member exchange accepted responsibility for federal tax reporting and issued Forms 1099-B to its members. The IRS ruled that the clearinghouse had no section 6045 reporting requirement for transactions in which it merely acted between the two exchanges to effect their members' sales.

Ruling snapshot

• Question: Must a clearinghouse between two barter exchanges report their members' transactions under IRC § 6045?
• Outcome: Approved
• Key authorities: IRC § 6045(a) and (c); Treas. Reg. § 1.6045-1(a) and (b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201514001 Third Party Communication: None
Release Date: 4/3/2015 Date of Communication: Not Applicable
Index Number: 6045.03-06, 6045.05-00
Person To Contact:
---------------------------------------------------- -------------------------, ID No. -----------------
------------------- -----------------------------------------------------
-------------------------------------- Telephone Number:
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Refer Reply To:
CC:PA
PLR-116060-14
Date:
December 16, 2014

Legend

A = ----------------------------------------------------

Dear ----------------------------------------------------:

This is in response to your letter dated March 24, 2014, and subsequent
correspondence, submitted by your authorized representative. The ruling
requested is that A does not have a reporting requirement under section 6045 of
the Internal Revenue Code with respect to transactions in which it is acting in its
capacity as the clearinghouse between two barter trade exchanges on behalf of
their respective members.

FACTS

A provides a marketplace in which barter exchange members can trade with
members of other barter exchanges. This marketplace allows a member of one
barter exchange who wishes to purchase a service or good that is not available
in the respective member’s barter exchange to purchase a service or good from
a member of another barter exchange. Conversely, by belonging to A, a selling
member expands its potential customer base to members in other barter
exchanges. Each separate barter exchange uses its own trade credit currency
within the exchange. A charges fees to each member barter exchange, and
established its own trade credit currency, which allows barter exchanges to effect
sales through A using a single trade credit currency.

To trade on A each barter exchange must establish its own separate account,
and is provided instruction by A as to how to use A’s trading software. To
effectuate a transaction through A, a barter exchange member will receive an
email notification from A indicating that another barter exchange member wishes
PLR-116060-14 2

to purchase from the selling barter exchange member. The seller, who is a
member of the barter exchange member, must accept the purchase offer for the
transaction to be effectuated. The ultimate purchaser and seller are not
members of A, but are members of their respective barter exchanges.

Pursuant to the rules of A, each member barter exchange assumes ultimate
responsibility for all federal tax reporting obligations of the barter transactions
occurring through A. The barter exchanges file and furnish Forms 1099-B to
report the proceeds from sales received by their respective members.

LAW & ANALYSIS

Section 6045(a) provides:

   Every person doing business as a broker shall, when required by the
   Secretary, make a return, in accordance with such regulations as the
   Secretary may prescribe, showing the name and address of each
   customer, with such details regarding gross proceeds and such other
   information as the Secretary may by forms or regulations require with
   respect to such business.

Section 6045(c)(1)(A) defines a “broker” as “(A) a dealer, (B), a barter exchange,
and (C) any other person who (for consideration) regularly acts as a middleman
with respect to property or services.”

Section 6045(c)(3) defines a “barter exchange” as “any organization of members
providing property or services who jointly contract to trade or barter such property
or services.”

Regulation section 1.6045-1(a)(1) provides in relevant part:

   The term broker means any person (other than a person who is
   required to report a transaction under section 6043), U.S. or
   foreign, that, in the ordinary course of a trade or business during
   the calendar year, stands ready to effect sales to be made by
   others.

Regulation section 1.6045-1(a)(4) provides:

   The term barter exchange means any person with members or
   clients that contract either with each other or with such person to
   trade or barter property or services either directly or through such
   person. The term does not include arrangements that provide solely

PLR-116060-14 3

  for the informal exchange of similar services on a noncommercial
  basis.

Regulation section 1.6045-1(b) provides that “[t]he following examples
illustrate the definitions in paragraph (a)”:

  Example 1. The following persons generally are brokers within the
  meaning of paragraph (a)(1):

  (i) A mutual fund, an underwriter of the mutual fund, or an agent for
  the mutual fund, any of which stands ready to redeem or
  repurchase shares in such mutual fund.

  (ii) A professional custodian (such as a bank) that regularly
  arranges sales for custodial accounts pursuant to instructions from
  the owner of the property.

  (iii) A depositary trust or other person who regularly acts as an
  escrow agent in corporate acquisitions, if the nature of the activities
  of the agent is such that the agent ordinarily would know the gross
  proceeds from sales.

  (iv) A stock transfer agent for a corporation, which agent records
  transfers of stock in such corporation, if the nature of the activities
  of the agent is such that the agent ordinarily would know the gross
  proceeds from sales.

  (v) A dividend reinvestment agent for a corporation that stands
  ready to purchase or redeem shares.

  Example 2. The following persons are not brokers within the
  meaning of paragraph (1)(a) in the absence of additional facts that
  indicate the person is a broker:

  ***
  (ii) A person (such as a stock exchange) that merely provides
  facilities in which others effect sales.

  ***
  (vii) A clearing organization.

CONCLUSION
PLR-116060-14 4

Based on the facts and information submitted and the representations made, the
following ruling is issued respecting A:

   A does not have a reporting requirement under section 6045 of the
   Internal Revenue Code with regard to transactions in which it acts
   in its capacity as the clearinghouse between two barter exchanges
   to effect sales on behalf of their respective members.

Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement
executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification
on examination.

                                    Sincerely,



                                    Ashton Trice
                                    Chief, Branch 2
                                    (Procedure & Administration)

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