I think the fact that it's treated as income is the point.

My company builds your company a website, and "charge" $1,000,000 for it.

Your company mows my company's lawn and "charge" $1,000,000 for it.

Both companies now have $1,000,000 in revenue from this transaction.

lol, no, unless you are saying "revenue" as in "revenue under my made up accounting system".

Under ASC 606 you can't just allocate any old number you like. On top of this, no auditor would sign off on what you suggested. The IRS would be looking at you and get you on tax fraud, you'd be committing securities fraud, bank fraud, wire fraud and 26 other things I can't think of.

Yeah, I agree. If all transactions are reported and treated like a sale.

I just have personal experience where the person offering from one side often wants to avoid the tax. In Australia we have 10% GST/VAT. Pay someone and there is 30% payrol tax (even as a sole trader). Then 12% mandatory pension contribution.

So the $5000 website/landscaping turns into 3k cash in hand.

Enticing to avoid this if you can, but I am risk adverse - clients pay me off the back of this. It balances the risk appetite of a business owner who could cut corners, with me sayng not to. If they do, at least I made the risk clear.

But your point is valid and correct. There is nothing wrong with contra deals where it's booked properly.

But they also have 1,000,000 of expenses, at least some of which is probably deductible from income.