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."

+ tax

Does this mean that sellers will now add a "sales tax" to what they're selling in order to compensate for this new tax? And who decides how much tax is paid? States? The National Government? (Please excuse my ignorance in American Government policies)

Re:+ tax

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

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

Need any new friends? ;-)

Re:+ tax

If it's going to come to State tax, you might as well do Craigslist and avoid the Ebay tax altogether.

Re:

I don't know if that would do it. Craigslist is partly owned by eBay. It is a minority stake, but it may be enough to get IRS attention.

It's not a case of who owns whom... but more the case that in eBay, the final bid price is enforced and persisted in e

Re:

If you buy a car for $20,000, and then sell it a year later for $18,000 but the blue book value is $16,000, then you've just made a $2000 capital gain which you have to pay taxes on.

Please don't listen to this guy, he's utterly wrong.

Re:+ tax

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:

Does this mean that sellers will now add a "sales tax" to what they're selling in order to compensate for this new tax?

There is no new tax. Income tax is paid by all people that run businesses (well, at least those that are profitable). Many people sel

So....

Just create multiple accounts, each keeping within the $5000 annual limit. Take that IRS!

Re:

Too bad tax evasion is a crime, huh?

Re:

Too bad tax evasion is a crime, huh?

So is anything but Missionary Position in some states, what's your point?

Cool as long as Europeans stop getting

fucked over for US sales tax.

Re:Cool as long as Europeans stop getting

can you site a case where europeans pay a state sales tax? I don't think i can think of any situation where they would.

Hell, I live in Michigan and even I don't have to pay state sales taxes.

If someone is charging a european a US State sales tax on a mail ordered item, they are pocketing the money. That makes them a reseller of questionable moral character.

Re:

or even cite.

Re:

Not sure what you're getting at--Europeans should never be charged sales tax from any state (there is no national US sales tax). This won't encourage or discourage sellers collecting sales tax from those people who they shouldn't be collecting from in the

Re:

It would be nice if you were to explain what you mean by this. Are you saying that Europeans pay US sales tax when they buy items online at a US company and have them shipped to Europe?

I would be very surprised if this were the case. I live in the US,

Stop putting the first half of

your reply in the subject line.

And when have Europeans had to pay a "US sales tax"? Considering the US does not have a federal sales tax, you must be referring to a state's sales tax. However, if you order something online and specify a delivery (or perha

Is there some law?

I'm not upon this stuff, but is there some law that says everything has to be taxed?

Re:

If you make money it is income.

Income is taxed.

Re:

in this case it's about taxing a business, so more accurately it's the profits that are taxed.

yes, I am aware that by some definitions, income is profit, but that's only as a wage. for a business, the difference between income (revenue) and profit (revenue

Exciting new tax bases

So now eBay businesses are in it with other small businesses. With an estimated tax of $2 billion, it's not just some profitable hobby, like sellin' pot. Which makes me wonder how much income tax would be generated if pot were legalized and became a busine

Re:Exciting new tax bases

Well according to wikipedia

"In the 2005 United Nations World Drug Report, the value of the global illicit drug market for the year 2003 was estimated at US$13 bn at the production level, at US$94 billion at the wholesale level , and at US$322bn based on retail prices and taking seizures and other losses into account."
http://en.wikipedia.org/wiki/Illegal_drug_trade#Or igins [wikipedia.org]

94 - 13 = 81 billion

81 * 25% ~= 20 billion.

so $20 billion in income taxes. and 94*.06 `= $5.5 billion in sales taxes.

That would be nice to get a bigger tax return due to the legalization of drugs wouldn't it! not even including the tax savings from not incarcerating drug users.

Oblig Monty Python

From http://www.ibras.dk/montypython/episode15.htm#4 [ibras.dk]

Third Official: If I might put my head on the chopping block so you can kick it around a bit, sir...
Politician: Yes?
Third Official: Well most things we do for pleasure nowadays are taxed, exce

Re:Is there some law?

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

I like taxes !

I like taxes. Not everything has to be taxed but I am happy to pay some. I like working with computers in a university job and having a bit of time to myself. I'm really happy not to have to be a part time police officer, fireman, social worker, sewage worker, nurse, builder of roads, and all those other jobs that I really appreciate getting done around me and make my life better as a result. I pick the voluntary work I want to do (community gardening). Happy to pay a percentage of my income so those other jobs get done.

As another poster noted, it all comes down to political theory and your preference for how society is set up. My preference is public servants carrying out the shared societal tasks, well paid enough that they don't have to take bribes to feed their families. I'm happy to financially contribute to that system.

Re:

Than the Slashdot headline "IRS May Ask eBay To Snitch On Sellers" is inaccurate and sensationalist?

Not about sales tax!

The IRS is not involved in collecting sales tax--this is about company and/or personal income tax. In fact, here's the first paragraph of the article:

When it comes to paying income taxes, eBay's legions of small-time entrepreneurs are on an honor system in

So much for that gig

Damn, now when we hit people up for sales tax, it actually has to be used for sales tax.

Hmm

When my employer tells the IRS how much I'm making it's reporting.

When eBay tells the IRS how much auctioneers are making it's snitching.

Funny how that works.

Re:Hmm

No, in the case of your employer it's still snitching: the business relationship is between you and company for which you work. The IRS inserted themselves into that relationship in order to extract their pound of flesh before the worker receives it. That doesn't make such "reporting" intrinsically right, in anything but a legal sense.

Re:Hmm

I dunno, I can see the difference...your employer is reporting on how much money *they* give to you, so it's just reporting. With eBay, they're not giving you any money, they're reporting on how much other people gave to you. So yeah, it kind of is "snitching"...although, it might be wrongly pejorative, since it's just enforcing existing tax law.

Cry me a river

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.

I hate the tax man as much as anybody, and my profits are already reduced by him.

So where did the submitter get the idea that eBay sellers are supposed to get a free pass?

If you already pay your taxes as the law requires of all of us, then your "profits" will not change. And if you don't... well, then you should go to jail like that guy from Survivor.

Re:Cry me a river

"if you already pay your taxes as the law requires all of us"...

Actually there is no such law at all. Everyone just assumes there is one! And the IRS goons come after you if you don't pay taxes, but in actual fact the IRS is constitutionally ILLEGAL! If you think I'm kidding, check this out:

YOUTUBE trailer
http://www.youtube.com/watch?v=rPypDaXfIV8 [youtube.com] [youtube.com]

Download the full movie torrent from here:
http://btjunkie.org/search?q=Freedom+to+Fascism [btjunkie.org] [btjunkie.org]

Re:

Most things on eBay are sold below market value.

How do you figure? The purpose of an auction sale is to determine the market value of an item.

I presume the IRS is after those who sell new stuff on eBay, as a business, not the "garage sale" types sellin

Some sells make you pay sales tax right now!

So will this make them not be able to charge you for it?
What about seller that are stores?
What stores that sell your stuff on ebay?

The real enemy...

...isn't just the IRS -- it is the CPAs and tax accountants and "experts" who have waged war on the common man. Taxes do NOT have to be as complicated as they are, but when they are complicated, the tax preparers have a huge "monopoly" of fear over the av

Easy solution for Ebay

Let the taxes ride for a year or three. Move the buisness out of the USA, and raise ebay fees. All you need to do is state that the fee raise is less than you'd have lost for taxes, and everyone wins, except for the US government.

Re:Easy solution for Ebay

The only thing eBay being in the U.S. has to do with this is that they are more willing to bend to the pressure of the IRS pushing for this information. eBay is not being taxed. Sales are not being taxed. Even if eBay moves off-shore, the fact remains that when the sale completes and the seller receives cash for the transaction... that is by definition "income".

While it is unarguably legitimate income that is required to be reported for U.S. residents, eBay is only one of COUNTLESS sources of non-employment based income that are absolutely untracable by the IRS. Tax evasion of this sort probably only amounts to a relatively small adjustment to the overall taxable income that the IRS handles. My guess is that IRS is just going for the "low hanging fruit" with eBay since all the transactions are recorded in a database and are easily deliverable; it is unlikely that they will be met with the same success in many other venues.

Cost of Goods Sold?

I've sold a lot of things on eBay, but never for more than those things cost me. For instance, I use a laptop for a year or two, then sell it on eBay for less than it cost me.

If forced to account for the "income", can't I also offset it by the "expense"?

It depends.

If forced to account for the "income", can't I also offset it by the "expense"?

Did you claim that laptop as a business deduction when you bought it? If you did, then you'll have to claim the money from the sale as income. If not, you've already paid your

I think they're lying

Are there really that many powersellers on ebay that they expect to get $2B from this small amount? I doubt it.

If we look at this article http://sfgate.com/cgi-bin/article.cgi?file=/c/a/20 07/02/24/MNGMPOAK5C1.DTL [sfgate.com] it says the total amount of goods sold on ebay last year was $25.2 billion.

They're assuming then that they can raking in 10% of this amount as taxes. That would be amazing, particular if we assume a cost basis of 50%, particularly since the bulk of ebay-ers probably come under the $5,000 amount and if anything, probably sell for a "loss".

Do the math people, this doesn't add up. One of two things will happen: Either they're going to go after every eBay transaction, of they're going to get probably 1/20th of the amount they claim. They may be counting on the fact that when you sell a Stereo you bought in 1978 for $400, you won't keep the original receipt making you liable for the entire $400 amount.

Really, this will add up to a tax bill for everybody who uses ebay, and the only people who will truly benefit will be accountants and TurboTax.

Re:

The catch here is that if you're audited, they (through Ebay) will have the proof you made, say, 10000 dollars last year selling stuff on Ebay. But you have to provide the reciepts proving that you spent 8000 (or 11000, or whatever) acquiring those goods

Re:It's really simple.....

Yeah, I'm a little unclear on what happens if you don't have those receipts. Sorry, Uncle Sam, I don't have the receipt for the DVD player I bought back in 2001 for $599 and just sold for $100. If you insist on assuming that my basis in the DVD player was $0 and tax me on the whole $100, you can bet I will find a way to make up for it elsewhere.

Bring it on.

Re:

Myself and my friends all heavily use eBay up here in Canada, because the markups on certain items (cellphone accessories, car audio, jewelry) are often 200-500% locally, even from traditional retail outfits. For example, they actually charge $30 for a le

Ebay is already doing this

This happened two weeks ago to a friend of mine, Jim, who called me in outrage and explained:

He geows and collects orchids and has phytosanitary (ie, the proper) permits to import
flasks of seedlings into Canada from the US.

Now, most sellers won't/can't ship to Canada, but that's alright, we both know a guy
that lives in Buffalo, Dick, that receves these shipments then they're collected by Jim from Buffalo
and he walks them through customs with the proper forms and the flasks are imported legally and properly.

Last time he did this he got won some auctions for plants, as well as flasks of
seedlings - the plants were a gift for the guy in Buffalo for his trouble.

Last week he had a guy from the Ministry of the Environment that explained to him when he showed up
at Jim's house than Jime has a permit to import flasks but not plants and he bought some plants and
they know this because they saw it on ebay. The catch is ebay had had to have
given the MoE this Jim's contact data as there is nobody else who has it and no
other way to get it.

So apparantly ebay cooperating with the IRS might be news but ebay cooperating
with any gov official that walks in and asks for data is already happening.

(My friends simply had to show the plants in question were delivered to the US
and stayed there which was easy)

Fair Tax = Screw the middle class

The so-called "Fair Tax" idea is pushed by the rich, as it is of great benefit to them.

Under the "Fair Tax", the rich keep amassing wealth, but will pay absolutely nothing on what they gain but do not spend. Now, with this very large amount of the nation's income sitting around being completely untaxed, all that's left to tax is what is actually spent each year: The very rich, while spending more than the average person, spends a much, much smaller percentage of their income each year. Let's think this through: You are only taxed on what you spend, minus the "poverty level rebate" - the poor pay nothing, so only the middle class and rich really pay taxes. Let's say the average rich person spends 20% of their income each year, and the average middle-class home spends 90% (this is not unrealistic when you consider just how much basic living expenses and a few basic luxuries cost).
This means that the rich are paying 80% less taxes on their income than currently, while the middle class only gets a 10% break. Where exactly do you think that loss of taxes will be made up? Well, there's apparently only one place they're allowed to - the "Fair Tax". If this tax rate then doubles to make up for the short fall, the rich are paying 40% of their previous tax rate, while the middle class is paying 180% of their previous tax rate!

When you consider how much time and money the rich spend abroad, you can see that their share of taxes falls even lower, since they will pay no taxes whatsoever to the IRS when they spend it overseas.

Simply put, "Fair Tax" is a bullshit name for this concept; it's the same old "rich get richer, screw the middle class" idea that drives most unfair tax law changes.

You want fair, easy, and simple? Have the IRS tax be "X% of income over $Y minimum", with deductions only for those truly altruistic reasons, such as recognized non-profit charities.

Re:

First, I'll say that our tax system is pretty screwed up, and your proposal to change it to a flat tax would be a welcome change.

However, there's an underlying theory that says you should tax bads, not goods, if you want to encourage good behavior. We sho

Re:Fair Tax = Screw the middle class

anyone who has actually read up on the proposed "Fair Tax" laws/reforms and has critical thinking skills knows that your above argument is bullshit.

Oh? Let's see these things that are supposed to make up this money...

You don't get rich and stay rich by simply not spending part of your money. Most rich people cycle through most of their money regularly...

How so? Most rich people dump their money into stocks. Stocks are not considered a "purchase", but are considered an investment, like putting money in the bank (but more risky). You only ever pay income taxes on stocks and other investments, not sales tax .

you know, paying employees,

Tax free.

buying and selling property,

Like houses/etc? Property taxes, not sales tax.

paying for components that go into consumer goods that they sell

Tax free.

investing in new technologies,

Mostly covered by employee wages and component purchases, above. i.e. tax free. There will be some "purchases" of new technology for internal use (thus taxable), but that's not what I think you meant.

funding start-ups that either fail or make you even richer after a few years...

Holy crap, you actually came up with something that would be taxed under "Fair Tax"!

Add to that the money saved by getting rid of unnecessary federal institutions if a "Fair Tax" is ever passed.

You mean the same savings you'd get under a flat tax plan? (Actually, more savings with flat tax, since you don't need to send out monthly "rebate checks", or totally replace the infrastructure we currently have in place for tax collection.)

I wish people would actually think this through instead of knee-jerking every time it's brought up.

I have thought it through. Unless a whole lot of stuff gets added to the "Fair Tax" that isn't currently covered by sales tax, you're still looking at a massive shortfall that will end up with raised taxes that burden the middle class more (as stated in my grandparent post).

How about you show me exactly where and how this extra money will be recovered, rather than listing a whole lot of areas that are never going to be taxed under the "Fair Tax" plan?

Re:Fair Tax = Screw the middle class

Um, dude. Whats wrong with you? Taxing the rich more is unfair.

No, what's wrong with you? You obviously can't read: I said that they should be taxed the same as the rest of us. Figure out a base percentage and apply it uniformly for any money made over a base minimum "poverty level" income.
How is "tax them the same as everyone else" = "Tax them more" ?

These people who have made millions earned their money.

Actually, most of them inherited it. But that's beside the point.

They deserve to keep the money they earn.

And nobody else does?

Re:

Because trying to play hardball with the IRS is a bad thing. Suddenly eBay has a full audit by the IRS. Then they find they are having a 7 year history full audit then next year they are doing it again. the year after that eBay says, "why are we getting