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

[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

[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).

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.

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.