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IV. Unreported Income
Respondent determined that Floors Trust had unreported
income of $6,908 in 1998, computed as the amount by which the
trust’s $93,831 in cash deposits for the year (determined through
a bank deposits analysis) plus bartering income of $16,734
exceeded reported gross receipts of $103,657. In the notice of
deficiency issued to Harlan, corresponding amounts were
determined to be taxable income to him as a result of the
disregard of Floors Trust for Federal income tax purposes.10
With respect to the $16,734 in bartering income determined
by respondent, petitioners stipulated documents indicating, and
Harlan admitted in his trial testimony, that he or Floors Trust
was a member of bartering clubs and that the figure determined by
respondent to be income from bartering represented the value of
services Harlan received from bartering. Gross income includes
compensation for services. Sec. 61(a)(1). When services are
paid for in property or in exchange for other services, the fair
market value of such property or other services must be included
in income as compensation. Sec. 1.61-2(d)(1), Income Tax Regs.;
see also Whitehead v. Commissioner, T.C. Memo. 2001-317; Badell
v. Commissioner, T.C. Memo. 2000-303. We accordingly find that
Harlan received bartering income of $16,734 in 1998.
10 Respondent has conceded that $83,024 of the $89,024 of
expenses claimed on Floors Trust’s 1998 Form 1041 are allowable
expenses for the flooring business conducted by Harlan.
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