Exclusion from Income of Compensation for Services and Pooling of Labor Occurring in a Noncommercial Setting

Abstract

When cash is received for services, it typically will constitute gross income to the recipient. But what if the payments are made in a noncommercial setting such as the payment by a parent to a child for mowing the lawn or performing household chores? As discussed later in this Essay, there are reasons to conclude that such payments do not constitute income. The problem of how to treat receipts from a noncommercial activity frequently arises in the context of an exchange of services. A similar problem arises when services are provided by several persons pursuant to a pooling of labor to accomplish a common noncommercial goal.The regulations state that if a taxpayer receives services from another as payment for services rendered by the taxpayer, each party will realize gross income equal to the value of the services received from the other. If services were received as full or partial payment for property, the value of the services received would be included in the amount realized on the sale of the property. The tax problems that arise in connection with the receipt of services mostly occur when services are exchanged, and this Essay addresses that situation and will deal only incidentally with a payment of cash or other property for services.