In some cases, a taxpayer may receive property in exchange for services rendered. This property received is considered income and therefore the taxpayer must include the FMV of the property on their tax return. The amount that is included in income becomes the basis of the property to the taxpayer.
Price Agreed Beforehand
If the taxpayer performed the services for a price agreed on beforehand, the IRS will accept that a price as the FMV of the property if there is no evidence to the contrary. Problems arise when the amount of income that is being claimed in far lower than the FMV of the property.
If the property is subject to certain restrictions, the basis in the property is its FMV when it vests substantially. However, this rule does not apply if the taxpayer makes an election to include in income the FMV of the property at the time the transfer of property occurs, minus any amount the taxpayer had paid for it. Property is considered vested when it is transferable or when it is not subject to a substantial risk of forfeiture.