Betty is a house painter and owns Trim Beautiful Painting Company. Last month she painted the lake cottage of Anne, a local attorney who performed some litigation work for Betty to help in some delinquent bill collection. The painting, valued at $1,000, was done in exchange for the litigation work. Neither party charged fees. What should be the tax consequences of these events?
I. Anne reports
$1,000 of income when the painting is completed.
II. No cash was received. Therefore, neither party reports income.
III. Neither individual reports income because there is no reporting of the event to the IRS.
IV. Both parties report income because there is no exclusion for barter transactions..
a. Only statement I is correct.
b. Statements II and IV are correct.
c. Only statement II is correct.
d. Statements I and IV are correct.
e. Only statement IV is correct.
d
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