IRS To Go After eBay Sellers

prostoalex writes "Fed up with numerous violations of tax law by individuals and businesses selling goods on eBay, Amazon Marketplace, uBid.com, etc., IRS is pushing Congress to make online marketplaces responsible for reporting the sales information to the tax man, in order to prevent under-reporting of the income. eBay's 'own statistics suggest that there are 1.3 million people around the world who make their primary or secondary source of income through eBay, with just over 700,000 in the United States', News.com says." How long before the same fate befalls the folks who make a living working the Massively Multiplayer secondary markets?

Comments

I support the IRS on this issue

[140Mandak262Jamuna]

A sale is a sale and income is income. If the law says there is a tax on income it should apply uniformly to everyone. Being a fully computerised market place, such reporting would not be too onerous on E-Bay. In fact small businesses, the mom-and-pop stores would find documenting their tax compliance more burdensome. Banks send out 1099-INT forms listing one dollar and two dollar interest earned. Why cant E-Bay?

When I came to USA first I was amazed to see how much of the expensive stuff is left around the homes completely unsecured. 1000$ grills, 800$ deck furniture, children's toys, garden tools, garden sheds are all left unlocked and no one would steal them. I have lost one tiny bottle of coconut oil left on the sill of an unlocked window in my hostel back in India. Then slowly it dawned on me that most Americans would not buy goods of doubtful provenance from shady sellers. Infact there is a market in b ombay called Chore Bazaar (thief market) which does brisk business. I would very much E-Bay not to degenerate into a giant "Chore-Bazaar.com"

Re:I support the IRS on this issue

[dreamchaser]

Sales tax in the US is a State (sometimes with an additional % or two for the county) tax. The IRS is in charge of Federal Income Tax. You are comparing apples to oranges.

However, I do agree that our whole tax code is messed up. A flat or consumption based tax would reduce the size of the IRS by an order of magnitude, save taxpayers billions spent on accountants and tax software, and probably bring in more overall revenue than the current system.

The Tax Code is more about power and control than it is about money.

Re:I support the IRS on this issue

[Snorpus]

If you buy an item, and then resell it at a higher price, you are no different than the shop around the corner (or WalMart)... the difference between your selling price and your purchase price, less expenses, is income, and subject to income tax. If you're selling used household items (that baby carriage that's been collecting dust for years in the basement), and you sell it for less than you paid for it, there is no income tax (in fact, you *might* be able to deduct the loss, if you have other gains to offset it). Of course, the IRS wants proof that you sold it at a loss.

The fact that you paid income tax already on your wages from your regular job is irrelevant.

Re:I support the IRS on this issue

[140Mandak262Jamuna]

If you sold your 2000$ lap top for less than 2000$ in E-Bay, you made a loss, there is no tax for you. There are people who scoop up items on garage sales for very low price and resell it in Ebay for a profit. Some of these folks are so good at it, it increases their income substantially. Those who make profit pay tax on the profit. The fact that you sold it to pawn shop, or on the garage sale or on the flea market or Ebay makes no difference. If you make multiple deals, some at profit and some at loss you pay a tax on the net profit, it any. You can deduct the cost of your computer, ISP charges etc as business expense if you used them for ebay work exclusively. If you have paid a professional photographer to take pictures of your car to post ebay you can deduct that too. If you make a net loss you can deduct upto 3000$ of it from your regular income. If you made more than 3000$ loss, you can carry it over to the next year and the year after etc etc indefinitely.

The system is quite fair, indeed.

Re:I support the IRS on this issue

[Rob the Bold]

A sale is a sale and income is income. If the law says there is a tax on income it should apply uniformly to everyone.

If you're an average person selling off unwanted stuff on ebay and buying the junk you want instead, then you aren't going owe income tax. You already paid income tax on the money you made to purchase your junk years ago. Most of it has not appreciated, to put it bluntly. If the IRS were to start playing hardball and try to tax you on the sale as Capital Gains, you would play hardball right back and show them your original basis and then the IRS would owe YOU for your loss. Likewise if they tried to call it ordinary income -- you're selling it at a loss, so no income. And then you'd started claiming your ISP fees as business expenses, and you'd take the home office deduction for the space you use to photograph and package your old junk. So the IRS won't come after ordinary "garage sale" type transactions.

Natch, this wouldn't apply so much to someone whose business is turning stuff over on ebay. They could be taxed on income the same way the corner store is, because they are presumably making a markup by buying wholesale and selling retail.

When I came to USA first I was amazed to see how much of the expensive stuff is left around the homes completely unsecured. 1000$ grills, 800$ deck furniture, children's toys, garden tools, garden sheds are all left unlocked and no one would steal them.

There's some unwritten rule about not stealing outdoor furniture and stuff like that. Even when my wife was my girlfriend and was living in a "bad" neighborhood, no one ever messed with her porch furniture. Sure there was gunfire in the hood, and her landlord's maintenance guy was murdered a few blocks away. And her house was broken into and her laptop stolen. But the porch furniture was always left alone.

Re:I support the IRS on this issue

[Registered Coward v2]

However, I do agree that our whole tax code is messed up. A flat or consumption based tax would reduce the size of the IRS by an order of magnitude, save taxpayers billions spent on accountants and tax software, and probably bring in more overall revenue than the current system.

Actually it would replace one set of convoluted rules and tax avoidance methods with another.

For example, some proposals suggest only taxing the final sale price to the end use; not the sale of goods required to produce an item. So a house, for example, would be taxed when it was first sold, but the lumber, etc would not be taxed when the builder bought it. While this makes sense on the surface - you only tax the items once; the goal then becomes to either:

1) lower the sales price as much as possible while still getting the desired cash. So, for example I build a home and then take out a $500,000 mortgage on it - which I get in cash. I sell you the house for a dollar and you assume the $500k debt. The government collects tax on a dollar, I have the desired cash and you avoid a large tax bill. This was actually a way to do a tax free sale of assets in the US until the Feds outlawed it via the tax code.

2. find a way for the ultimate end user to be the builder and never sell the house. So I form a corporation for the express purpose of building a home and hire a contractor to do so. Once the house is built I occupy rather then sell it. Since the first sale has not occurred I have not incurred any tax liability. When I go to sell the house I sell the corporation which owns an asset - so unless you tax sales of corporations as well I make a second tax free transfer; or I do 1 above as part of the sale.

A "Fair Tax" as some propose on consumption will not simplify the tax code; all it will do is cause smart people to find new loopholes that Congress will then try to close.

A secondary effect is the impact on such things as home sales - new homes would have to sell for less than existing ones since they would be taxed and buyers tend to look at the final price, not the one "before tax" price.

Of course, Fair Tax advocates simply ignore these points when making their argument. I set next to one on a plane flight, when he brought up the "Fair Tax" and try to sell m e on it I started asking about these things - his response was to get upset and say the details weren't important. At least I shut him up so I could enjoy my book.

Oh Please

[dreamchaser]

They'd be doing this regardless of who is in office. It's what the IRS does...it goes after people who avoid paying taxes on income. As for your gratuitous statement about who will and won't pay the taxes, you do know that 79% of the tax burden is carried by the top 20% of income earners, right?

Maybe for once we should stop being partisan and take a good honest look at these issues rather than using them as a soapbox to attack one side or the other on the political spectrum.

As for the topic...as long as our tax code doesn't get fixed this is entirely correct of them to do. And as for those selling MMOG goods, I hope they all get audited. I pay my taxes, and a healthy amount of them. Why should some guy making $50,000 a year selling Ultima Online gold (for example) not pay any?

Re:Oh Please

[timmarhy]

right on. i make a decent income, you wouldn't class me as "rich" but i work long hard hours and sacrifice family time and personal time to try make a contribution to society and to increase my wealth and the well being of those around me. why the fuck should some asshole have the right to avoid paying what i have to pay just because he's doing business online?

Re:Oh Please

[ScentCone]

Maybe for once your partisan republican ass should stop making blatant lies?

You're actually saying that, and then linking to an "analysis" that cites a fictional town with a flat tax rate as an example of why he's wrong?

Income, property, and other tax rates are NOT flat. They are largely "progressive," which translates to "punitive." Here are the numbers, released by the IRS, based on last year's taxes:

84.6% of all federal income taxes are paid by the top 25% of earners
96.7% of those taxes are paid by the top 50%
The top 1% pay over a third of those taxes.

And just to flesh out the picture: the lowest-earning fifth of the citizenry receive over $8.00 in government spending for every $1.00 in taxes paid. Middle income households receive $1.40 for every dollar paid, and the high end people receive $0.41 for every $1.00 they spend. Government spending aimed at the lowest-earning 60% exceeds that which is collected from them. It's simple redistribution, and the more you make, the more it tilts away from you. Your flat rate fantasy example is complete BS (but, you knew that).

Re:Oh Please

[zacronos]

What the previous poster's link points out is that statistics such as those will *always* provide numbers that look warped, because the statistic itself is inherently slanted. Even a flat tax rate will yield similar numbers (and they'll be more extreme the more disparity there is between the top earners and the bottom earners). If, instead, we saw statistics such as:

the top 1% of earners pay 1% of all federal income taxes
the top 50% of earners pay 50% of all federal income taxes
the lowest 1% of earners pay 1% of all federal income taxes
... etc.

That would be indicative of a flat tax (not a flat tax rate, but a flat tax -- as in "everyone pays the same amount of money to the government"), which can also be called a regressive tax. You know what that translates into? "If you start out poor, or at any point find yourself poor, you're probably going to stay there." Economic mobility is one of the great ideals of America, and a regressive tax hurts the economic mobility of those who need it most -- the bottom earners.

I also disagree with your characterization of "progressive" income taxes as "punitive". Progressive taxes are based on the idea that individuals don't need the second half of their income as much as the first half. For example, one year say I make $50k and it gets taxed at some rate X. The next year, say I make $100k. The first $50k will probably get taxed at rate X, just like the year before; the second $50k will get taxed at a higher rate, let's say $2X. I would be more inclined to agree with you that it would be punitive if they taxed my entire $100k at $2X, but even then it depends on the exact implementation. In the end, here is why I disagree with you: when all else is equal, if you make more, you will keep more. If there were times when earning an extra $5k in the year would be worse than not earning it (in terms of net income after taxes), then it would be punitive. While this may be true in specific circumstances due to tax credits that only apply if you have income under a certain threshold, that is the fault of those tax credits, not the progressive tax rate.

Progressive tax rates do not discourage people from earning money. Progressive tax rates are not intended to discourage people from earning money. They do not punish people for earning more -- or at least if they do, they don't do a very good job of it, since in mind mind the primary objective of punishment is to discourage the act (either in the once committing the act, or others considering committing the act). Therefore progressive tax rates are not punitive, and personally I feel that it is either ignorant or intellectually dishonest to say so.

> It's simple redistribution, and the more you make, the more it tilts away from you.

Yes, but it never tilts away enough that you'd prefer to earn less than more, does it?

Re:Oh Please

[fyngyrz]

Charging sales tax again is double-dipping --like they do to you when you buy/sell a car, boat, etc.

The entire system is based on multiple dipping, and the lower you are, socioeconomically speaking, the more dips you pay.

Say a corporation pays an employee $20000, and he pays $500 in taxes of which, 100% comes from its customers. So the customers are paying the salary and the taxes for the corporation's employee. In the meantime, the customer is paying those costs with what is left over from his income, after tax. So the customer in every case pays his own taxes, and then those in the economic pyramid above him from what remains after his taxation.

Here's another one. Some company - say the gas company - decrees, for whatever reason, to have medical coverage for its employees. Where does that money come from? Why, from the gas company's customers, of course. So as a customer, you pay for the gas company's employee's medical coverage out of your income before you can pay for your own. Same for the bank employee and so forth.

You don't get to say, for instance, that you spent all of your income ($20000) and of that, 27% went into paying other people's taxes, so you shouldn't be taxed on that part of what you spent. Oh no. You pay your taxes, the taxes of the guy who hauls fuel for your car, the taxes of the guy who sucks the oil out of the ground, the taxes of the guy in the convenience store where you get your fuel, and the taxes of everyone else from whom you purchase a good or service, and you pay this out of your taxable income. Nice, eh?

So the fact is, the people at the bottom of the pyramid have everyone else's costs built into their incomes.

But it is actually worse than that. Unlike taxes, the progression is reversed, percentage wise. Got a lot of phone business to do with the phone company? Then they'll reduce your rates, special deals, good customer, yadda yadda. Percentage wise, you're now paying less for the medical care and taxes of the phone company employee than is some single mother who has a phone on the basis of the services of the phone company you actually receive. That leaves more for you to pay your own costs both on a percentage basis, and on a real basis.

Our economy literally sits heaviest on the shoulders of those at the bottom. It is designed to do so, or at the most optimistic, has evolved to do so.

What's so strange about it?

[Gadzinka]

I don't understand what could be wrong with it.

I don't know about eBay, but I know for a fact, that there are people in Poland using local auction service that move tens if not hundreds of thousands $ worth of stuff monthly, without paying any taxes on that. Polish revenue service lately started monitoring it closely and collecting from those people, reassuring all the time, that they are not interested in people using internet auctions for a garage sale. As far as I know, that is true.

Whether you believe in taxes, is another matter, but I don't see why certain individuals should get a tax break just because it is difficult to hold them accountable. It's within a power of the state to levy taxes and create the law to help with it. And sometimes the state forces some reporting duties on some entities in order to help the state. Take for example your salaries: in most countries employers are forced to report the salaries of the employees to regulatory and/or revenue agencies, and I don't see anyone screaming bloody murder.

Robert

Re:Nothing To See Here

[kt0157]

There is no tax due in the UK on your personal property when disposed of, even if at a profit (personal effects are exempt from capital gains tax because they would mostly generate losses to be offset against other gains). If you trade stuff you acquire for re-sale, and you trade enough to go over the VAT threshold (which is quite high), you will have to account for VAT as a second-hands good trade (essentially, VAT is charged on the difference between the buy and sell price). On the upside, you can reclaim VAT on all the kit you use to trade (e.g. computers, fuel, etc.).

In the US and Canada things are a bit different due to sales tax. In Ontario, for example, everyone is required to send a cheque for PST to the Ontario finance minister for all sales of goods, no matter how small, no matter if a yard sale, no matter if a private sale. Of course, not one citizen abides by this crap law (except where the provincial or federal Government can track the ownership of private goods, such as cars, planes and boats). But once EBay are sending nice XML files straight to the Government tax weasels you can imagine a nice automated bill (applied directly to your EBay account, naturally).

Re:MMO Black market

[vertinox]

It's "technically" "illegal" to sell most MMO stuff like gold and characters, at least for the most heavily populated. The irony?

No... It is not "technically" illegal. Violating an EULA does not actually violate any criminal laws. They can of course refuse you service or take you into civil court for a breach of contract but they cannot impose criminal fines or jail time on you for such an act.

Secondly, the IRS still requires taxes paid on money gained through illegal means. Drug dealing, gambling, bootlegging, extortion, and laundering all count under this aspect. Chances are if they can't prove you are doing something wrong they will nail you for tax evasion.

Happened to Al Capone since they couldn't get him any other way.

Paying the Real Bills

[Doc Ruby]

How long before the same fate befalls the folks who make a living working the Massively Multiplayer secondary markets?

Why shouldn't they pay their taxes like the rest of us do, if they live in the US? They also count on the cops protecting their house and their jogging girlfriend (or sister), the firemen saving them and their cats from their careless neighbor leaving the iron on. They need the gas station attendant to read well enough that they don't damage their car while changing the oil. They want the courts to stop the chemical factory upstream from poisoning them. They want that border protected with at least the threat of reprisal in case China doesn't stop at Taiwan, and invades Alaska.

I know the rest of us do, and we pay for it. Why should we pay for them to be safe, too, just so they can work in a game in their pajamas?

What we should change is what we're paying for. We shouldn't pay the government for the money we earn, income taxes. We should pay the government for the services we consume, which benefit is just about proportional to what we consume. So we should pay zero income tax, and maybe about 25% sales tax: a $16T economy should support a $4T expense at Federal, state and local budgets. Easier to collect from fewer points, easier to shut down violators' business, and encouraging savings instead of wasteful unnecessary consumption, with a built-in "tax break" bonus. Just a few tweaks to make essentials like raw food, raw cloth, median primary rent/mortgage tax free, and equities at a nearly negligible rate.

That is reality. Just working in a virtual world doesn't mean your body isn't consuming services with a cost in the real world. Ducking the taxes is a losing game for the rest of us subsidizing them.

Re:MMO Black market

[apathy maybe]

I recall the story of a brothel owner in the US who was only prosecuted for running a brothel. She paid her taxes, had a good working environment for the workers, health insurance and all the rest. (Of course, I can't find a link to the story.)

Moral of the story? Don't get cause for speeding when leaving a bank robbery.

Or in other words, break only the law that you intended to, and not any other.

On topic to the story, in Australia at least personal items are not taxed if sold, and don't have to be declared for either Centrelink (the government handout department, they pay my way!) or the taxation department. As far as I know, hobbies also don't have to be declared (or maybe they do, but just aren't taxed).

3rd party seller

[ianchaos]

My Grandmother (89 years old) is quite net savy: email, instant messaging, and ebaying almost daily. The vast majority of the items that she sells on ebay however are for other people who live in her massive assisted living complex. Last year over $12,000 worth of goods went through my Grandma's ebay account. She only charges the people a dollar per posting (on top of the normal ebay posting charges). For her it's just a fun hobby, so her net income off of that amount was almost nothing. With this kind action by the IRS my Grandma would be held liable for the taxes on that $12,000, regardless of the fact that she didn't really make any kind of profit from it.

I'm sure that there are many people who sell an item here or there for a friend on their ebay account. There is no way for ebay to distinguish a personal sale from a 3rd party transaction, so for ebay to report this information to the IRS as profit could be wildly inaccurate.

Re:3rd party seller

[Oligonicella]

Simple. Your grandmother needs to start keeping very detailed records. She must prove to the IRS she didn't make $12K. I don't see the problem, other than her hobby became more detailed.

Fraud

[rtechie]

I for one am in favor of this move. Not because I think people should be paying more taxes (When people are going to great lengths to avoid a tax, it's a sign that tax is unfair. Nobody should be paying income taxes that makes less than $100,000 per year.) but because this might do something to prevent the rampant fraud we see on eBay. The fraudsters aren't likely to want to pay taxes, and collecting taxes will probably require eBay to collect more information on sellers, which will reduce fraud. Especially if eBay faces financial penalties for not properly collecting tax revenue.

Here's hoping.