The US Internal Revenue Service (IRS) has ruled that web sites can trade banner ads without having to report them as revenue. Under the ruling, the IRS classifies banner ad swap as 'barter exchanges' and has applied a retroactive exemption to all exchanges in 1999 valued at less than a dollar.
Banner ad exchanges accounted for 6 percent of the nearly $1bn per quarter in Internet advertising revenue last year, according to consultants PricewaterhouseCoopers. Under the previous ruling dating back to 1984, US companies were required to file detailed reports on every ad exchange. The new ruling can only be viewed as an admission of failure of on the part of the IRS, as few of these reports were ever submitted by companies and advertising industry representatives have been pushing the IRS to scrap the reporting requirement.
In announcing the new ruling, the IRS said it recognised that millions of cash-free barter exchanges of banner ads or other site content happen every day. "The reporting burdens – for either taxpayers or tax administrators – should not outweigh the benefits of collecting information on transactions with minimal value," said IRS Commissioner Charles Rossotti in a statement.
The IRS also asked for input from those involved in barter exchanges and other electronic commerce or Internet services on the scope for additional barter-exchange exemptions and revised reporting requirements, as well as whether special tax rules should apply to the bartering of electronic or Internet services.
While this is a step forward by the IRS, the limit of $1 on taxable exchanges is ridiculously small. Who will bother to report a $2 exchange? How much does it cost to make such a report?
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