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I was reading an answer over on Law.SE, and it made me wonder about how the IRS calculates tax on barter transactions.
Lets say that I do a job in January, and get paid for my work with 20 goats and when I received the payment, goats were worth about $100 each.
Later that year, in October, I do another job of about the same value, but this time I get paid with 5 goats. The goat market has gone absolutely crazy and they are now worth about $400 a head.
In December, the goat bubble officially popped, and they're down to $20 each. I didn't earn any goats in December, but this market downturn might be important.
So, for the year, my taxable income was 25 goats. How would I, or more importantly, how would the IRS allow me to calculate taxes on my earnings? Would I have to prove the market value of the goat when I received payment? Can I claim that I only earned 25 * $20 since that's what the goats are worth now?
Note: Assume that this small income is taxable as if I just made $50k/year. I realize that with such a small earning taxes wouldn't normally be due and I'd be living in poverty with my goats, but that's not a part of my question.