Taxpayer A, a dentist, fills a cavity for Taxpayer B, an attorney, in exchange for legal services.If the value of the dental services equals the value of the legal services, neither A nor B has earned taxable income.

Question

Quizplus · Accepted Answer

Both Taxpayer A (the dentist) and Taxpayer B (the attorney) have earned taxable income equal to the fair market value of the services exchanged, regardless of whether the values are equal. The fact that the services are exchanged instead of paid for in cash does not exempt them from taxation.

Taxpayer A, a Dentist, Fills a Cavity for Taxpayer B