Exchange of Cash: Can it be considered barter?

[naggopalan]

The IRS defines bartering as "Bartering is the exchange of goods or services."

Can an exchange of cash be considered a barter that is subject to taxation in the hands of both parties involved?

Scenario:

- Person A (a non-resident) gives Person B a certain sum in USD from an account with a US financial institution

- Person B (a US resident) gives Person A an equivalent sum in a foreign currency from an account with a foreign financial institution

It seems like the answer is no given the fact that if both transactions were in USD and involved US residents (Person A gives a certain sum to Person B in USD who then gives it back to Person A), it would not be a bartering transaction.

Also, would this be considered a gift and subject to the rules governing taxation of gifts? 

Again, it seems like the answer is no, since the IRS defines a gift as "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return". In the above scenario, both parties received full consideration albeit in different currencies.

[Vanessa A]

No, neither scenario is bartering.  Bartering would be Person A does plumbing work for person B.  In exchange for the plumbing work, Person B gives Person A horse. If you are exchanging money, it is not bartering.

If you are simply trading dollar for dollar, this is not a gift.  You are simply exchanging money so you can use the currency in a different country.  This is done every day when one enters a country with a different currency, but it does not create a taxable transaction. A gift would be you give something and get nothing in return. 

[naggopalan]

Thanks for the response.

Would the answers be any different in the following, slightly different scenario?

- Person A (a non-resident) gives Person B a certain sum in USD from an account with a US financial institution

- Person B (a US resident) gives Person A foreign company stock (not traded in the US) worth an equivalent amount

[JulieS]

No, that is still not barter. 

Person A has purchased stock in a foreign company. 

[naggopalan]

Got it!

So it would just be that Person A has purchased the stock in a foreign company from person B and paid them in US currency.

There is no reportable income for person A, but person B would still have to report any capital gains as income, correct?

[ThomasM125]

Yes, person B would have to report any gain earned on the transaction on his or her tax return.