IRS May Ask eBay To Snitch On Sellers

Makarand writes "The IRS thinks that many sellers on online auction sites are unaware of their obligation to declare their profits and pay their taxes to the IRS. Tax experts are now asking the IRS to require online auction sites like eBay, Yahoo, and Ubid to report the gross sales numbers for their sellers. Such a requirement will surely send a shock wave across the online trading world because it could drastically reduce the profits a seller would make on these sites. The IRS thinks it can collect an extra $2 billion in taxes from this requirement that auctioneers report sellers who complete 100 or transactions a year worth at least $5,000."

Comments

Re:+ tax

[LFS.Morpheus]

I believe they're after income tax - the amount of tax would be decided by the existing income tax code. It is likely that most eligible eBayers would be considered operating their own business (self-employment) and would need to report their income (and expenses) on a 1040SE.

Reporting of this income might also lead to sales tax as well, but that is collected by the state, not the IRS. In addition, this is the responsible of the buyer to pay, not the seller, unless the buyer and seller are in the same state.

Dislaimer: I'm not a tax expert, but I play one when I talk to my friends into letting me do their taxes. :)

Re:+ tax

[patio11]

Sellers already have to charge sales tax in some circumstances but for small non-corporate sellers compliance is nil. This is an income tax issue, though, not a consumption tax issue. For example, if I make say $50,000 a year and am hypothetically paying a marginal 30% on additional income, if my bosses give me a $5,000 raise I lose the first $1,600 or so to taxes. However, if my eBay business profits $5,000 and I don't declare it I get that $5,000 taxfree. (If I do declare it I actually end up paying MORE than $1,600 due to self-employment tax but thats another matter altogether.) I suppose you COULD raise prices to compensate for this but you can't call it a sales tax surcharge and, indeed, with the amount you'd have to raise prices people would likely go spare if you tried.

Signed,

Guy who actually did pay taxes on his web-based small business this year

Re:Is there some law?

[Grech]

Yep. 26 USC 61 defines what is taxable income, and uses the phrase "from whatever source derived". 26 USC 1 imposes the tax itself on individuals, estates and trusts. 26 USC 11 does the same for corporations.