Daily Archives: October 26, 2012

How to integrate community currency with commercial barter exchange

by Chong Kee Tan

As more grassroots organizations launch new community currencies in different parts of the world and exploring alternatives to the traditional economy, more are starting to discover the commercial barter exchange industry.  At the 2012 IRTA annual conference – IRTA  is an association of the commercial trade and barter industry – Rob Van Hilten from Qoin, a community currency organization, called for dialogue between the two so that each could learn from the other.

Commercial barter exchanges focus on B2B (business to business) trade whereas community currencies tend to focus on C2C (consumer to consumer) exchanges. Both are now moving towards the B2C space and trying to figure out how best to do it.

Another key trend is the use of software to facilitate trade in complementary currencies. When transactions are captured electronically, it immediately raises the question of tax reporting.

Right now, IRS ruling for reporting is that all barter trades must be reported using 1099-B. Corporations can report the aggregate amount, while individuals and sole proprietors have to itemize every transaction. This makes individuals and sole proprietors balk at participating in barter transactions because receiving a 1099-B will force them to become businesses that must file at minimum a Schedule C.

Thomas Greco suggested four possible solutions:

1.     Get the IRS to take a more reasonable attitude on this.

2.     Get the regulations changed by pressuring legislators.

3.     Drown the IRS in reports. It can be more easily automated these days.

4.     Allow members to draw paper vouchers against their account balance or line of credit. Eliminates the paper trail of transactions and reduces admin burden. Vounchers should have an expiration date.

#1 is risky because it brings small community exchanges that were previously under the radar under the IRS microscope. The IRS could easily make a rigid ruling. It could then take a long time to undo the damage.

#2 is a long and drawn out process. #3 is unlikely to produce any change. But #4 is promising as an immediate solution.

Vouchers can be issued in a few fixed denominations, like $1, $5 and $10. To prevent counterfeiting, the vouchers should have security features. This makes them look very much like paper community currencies such as BerkShares, or Bristol pound, or the greenbacks.

They function just like paper money too. When a business accepts it as payment, they account for and report tax on it just like when they receive cash. But this paper complementary currency can circulate among consumers without any electronic trail.

It is even more tax compliant than cash because when a business deposits the voucher into their trading account, the software will recognize it as an income from sales and will report it in the 1099-B.  Banks on the other hand do not report cash deposits to the IRS as income.

Thus, we see that B2B transactions in complementary currency can take place on software platforms through electronic credit and debit of accounts. C2C transactions can take place through the voucher mechanism, which is available in most commercial software packages. Finally B2C transactions can take place both through the voucher mechanism when accepting payment from consumers, and through the software when depositing vouchers received into their accounts.

What this means is that community currencies can be implemented in a tax compliant way using commercial barter exchange software. Furthermore, using a commercial barter exchange software also allows community currency initiative to offer B2B barter and B2C loyalty programs. In short, it enables a fully integrated solution.

IRTA is currently evaluating all available barter software platforms. Stay tune to find out which platforms are good for such an integrated implementation.

The above is a summary of a discussion between Thomas Greco, Annette Riggs, K. R. Hughes and Chong Kee Tan on 9/21/12. Reported by Chong Kee Tan.