Bulletin #40

Taxpayer's Information Service
October 1988

Barter Credits

Tax credits are granted under the Neighborhood Assistance Act to encourage businesses to make investments in approved neighborhood programs. The Connecticut General Statutes make it clear that credits shall be granted only for investments actually made to approved programs.

As the Neighborhood Assistance Act has evolved, contributions of so-called barter dollars have been used to claim credits. Firms claiming barter credits have in some cases not applied the credits to contributions to programs intended to benefit by the tax credit. That frustrated the intention of the Legislature. To remedy this, the Department of Revenue Services has ruled that the following two criteria must be met for a barter credit to be claimed under the Neighborhood Assistance Act.

(1.) The neighborhood assistance program must receive the benefit (i.e., exchange barter dollars for goods or services) during the income year of the donating firm that begins during the calendar year in which the firm files its letter of intent.

For example, if a firm makes a contribution in March, 1989, and its income year ends April 30, 1990, the neighborhood assistance program must receive a benefit by April 30, 1990.

(2.) The donation of barter dollars must have been deductible as a charitable contribution for federal income tax purposes during the income year of the donating firm that begins during the calendar year in which the firm files its letter of intent.

This ruling is effective as of September 28, 1988 and shall operate prospectively.