Ebay to report sellers to IRS in 2008.

polksda

http://www.ft.com/cms/s/657692b0-c03e-11db-995a-000b5df10621.html

Treasury aims to collect $2bn in extra taxes

By Eoin Callan in Washington

Published: February 19 2007 17:45 | Last updated: February 19 2007 17:45

Ben got started as a seller on eBay when he had to get rid of unwanted wedding gifts and old junk to make room for a new baby in his small home near Kansas City.

But he quickly “caught the bug” and became one of more than 4.3m people that make a significant chunk of their income from eBay.

The full-time engineer says that in his spare hours he buys up discounted items such as downhill skis “that people don’t really need” in the Midwest - “where it is pretty flat” - and sells them online to people in places “where there are more hills”.

What makes Ben stand out is that – unlike many eBay users – he will in April voluntarily declare this income to the Internal Revenue Service and pay US business tax rates.

Kristine McKinley, his accountant, says this is the first year that clients have come forward to her main street practice because they “are making enough from eBay that they are concerned about whether or not they need to pay tax”.

People’s caution in coming forward has prompted the Bush administration to propose compelling eBay and auction businesses such as Sotheby’s to report to the IRS any customer that carries out more than 100 transactions a year worth at least $5,000 (€3,850, £2,565).

The Treasury expects to collect $2bn in extra taxes from the new regime, due to come into force on January 1 2008.

But eBay is fiercely resisting the proposal and has mobilised its extensive lobbying operation on Capitol Hill to question the legality of the proposed changes.

Representative Rick Boucher, who has received campaign donations from eBay, said he had been contacted by the company and shares its view that the Treasury and IRS would be stretching the limits of their authority by extending rules that cover “brokers” to the website.

The online auction group argues it is not a “broker”, or a “middle man” or an “auctioneer” or an “auction house”. So what is it then? It offers an “auction-style” service but is more “like a shopping mall,” a spokesperson says.

In turn, the company argues that the Treasury’s plan would be unfair because it regulates in such a way that exempts competitors like Craigslist that have different business models based on plain classified ads without the auction or payment tools of eBay.

EBay says forcing it - and not Craigslist - to snitch on customers would be the equivalent of requiring indoor shopping malls to report tenants’ behaviour but not open-air strip malls.

“Business owners would relocate to the strip mall,” says a spokesperson.

But it is precisely eBay’s solid business structures and overarching customer service that has helped attract the unwelcome attentions of the overworked and cash-strapped taxman.

Ebay already tracks the volume and value of its customers’ transactions, notifying them when they reach key milestones and soliciting them with customised services.

The Treasury proposal would open the way for the financially stretched IRS to piggyback on the company’s systems by requiring eBay to report to authorities when customers hit milestones.

The company says it will cooperate with the IRS in investigating named individuals and entities, but does not want to act as a “go between” for customers “en masse”.

It wants tax collectors to rely on their own wiles and defends the hands off approach to tax that is apparent from interviews with eBay users.

Elena Neitlich, who runs a highly successful online store from home called Moms on Edge, says eBay appointed a special adviser to coach her almost daily on every nuance of her auctions from catering to different timezones to the optimal names for potty training toys.

But the award-winning eBay seller says she cannot recall ever being reminded of her tax liabilities.

“I don’t remember anyone saying to me that now we needed to go through the tax issues. No, that didn’t happen,” she says.

The eBay spokesperson says: “We believe that it is the seller’s responsibility.”

Ben – who asked that his last name be withheld because he runs a blog that details a lot of personal finance information.

“What I do is just like any other small business, so I should pay tax,” he says.

Copyright The Financial Times Limited 2007

hearingimpared

Ben gets the good citizen award.

jdhdiggs

No doubt... If you use E-bay as a business avenue, it should be treated as a business. I like the low end limits as well. Overall, if you're going to tax businesses and people for making money, you might as well get them at all their sources.

RuSsMaN

Ok, so I'm done with ebay by years end. Better grab what you want now, them prices about to shoot up....

Refefer

It mentions only certain milestones. Makes me wonder what they will be.

Can you write off purchases from ebay as buisness expenses?

G-2

We've used ebay off and on since the late 90's and it has gotten steadily more expensive (usage fee's). RuSsMaN you're dead on!

Early B.

eBay will win this fight. If not, it'll be the beginning of the end of eBay. They'll use their political clout to overcome this one. They have a good argument about singling out ebay but not craigslist. It's definitely the seller's responsibility to report this income.

billbillw

I'm sure this will only apply to "power sellers" and such. Normal occasional sellers cannot be subject to this. Heck, most of the time I could claim a loss on the items I sell, if they want to play that game. Most consumer electronics sell for far less than the original MSRP on Ebay. IRS would have a hard time determining how much we paid for items in the first place. I think the last things I sold on Ebay were an Onkyo Amp and matching tuner and although I made a small profit on them, they both sold for less than half their MSRP. I really only think this will apply to people who have drop shops and/or ebay stores.

reeltrouble1

Looks like its over 5,000 a year with more than a 100 hundred sales, not going to affect me. Of course I never sold anything on E-bay.

I don't take E-bay to seriously, others do, especially those earining their life-blood from sales.

RT1

Demiurge

jdhdiggs wrote:

No doubt... If you use E-bay as a business avenue, it should be treated as a business. I like the low end limits as well. Overall, if you're going to tax businesses and people for making money, you might as well get them at all their sources.

Maybe it will finally get the supposed great unwashed to wake the eff up and realize what taxation is really like when it comes directly out of their pocket. This, instead of just a number listed on a pay stub that never gets looked at, would be brilliant. Maybe they'll finally get an idea what it's like for a business when they get personally treated like one. :eek:

If people had to physically write a check out to the government each week for taxes they'd be screaming at the top of their lungs. I'd love to see it. More fat would be cut in 1 year than had been added in 30.

The taxes are absurd, and this is merely another. If it wakes up and angers the general public, I like it.

ohskigod

this has been a long time coming. I use ebay casually, but I also used to work in Tax enforcement (on a state level).

for those that think ebay will win, dont count those chickens yet. the IRS has broad abilities to tap business records of virtualy any kind to enforce tax compliance, and tons of legal precedence backing them up.

what the problem is, is distinguishing those that use it casually, and those genuinly running a business. For those who asked, if one is treating it like a business, then you are entitled to all deductions that businesses are, and cost of the merchandise you are selling is one of them. (your basically doing a schedule C to determine the "profit") there is a ton of other deductions as well.

if someone is selling casually, in other words, selling old stuff in there basement, or even in most of our cases, audio equipment that we use for a while, and then sell when we upgrade, then that is not a business.

I feel Ebay's point about them vs craigslist, but I think Ebay's regimented format and actual assistance/payment options, etc, will work against them here.

its easy to get pissed at the IRS, but if they are thinking it will generate 2 billion in revenue, then they must have come to a realization that a ton of genuine business revenue is not being reported. simply put, blame the guys that sell hundres of thousands worth of stuff on the internet and dont report any of it. there is a lot of themout there that do it, and that is the reason the IRS is doing what they are doing.

MikeC78

The government is broke, go figure...

Rivrrat

what the problem is, is distinguishing those that use it casually, and those genuinly running a business. For those who asked, if one is treating it like a business, then you are entitled to all deductions that businesses are, and cost of the merchandise you are selling is one of them. (your basically doing a schedule C to determine the "profit") there is a ton of other deductions as well.

That's the way I see it too. For every action there is an equal and opposite reaction. I doubt they're going to get anything close to what they think they are.

The only people that actually are going to make out are accountants.

ohskigod

Rivrrat wrote:

That's the way I see it too. For every action there is an equal and opposite reaction. I doubt they're going to get anything close to what they think they are.

The only people that actually are going to make out are accountants.

you might be right, but understand that we might be underestimating the number of people that dont declare. you look at the people that have ebay stores with feedback in the 10's of thousands, the ones you just cant deny are running a business, that are probably NOT reporting income.
believe me, like I said, I worked in Tax enforcement, and some of the brazen stuff I have seen would surprise you.

there is a prevalent thought among many that if its done through the internet, then there is instantly notaxes involved. nothing can be further from the truth. increased internet enforcement has been a long time coming across the board. it allways takes government a long time to react to new things. but what they lack in awareness and speed, they can make up for in effect.

krabby5

billbillw wrote:

I'm sure this will only apply to "power sellers" and such. Normal occasional sellers cannot be subject to this. Heck, most of the time I could claim a loss on the items I sell, if they want to play that game. Most consumer electronics sell for far less than the original MSRP on Ebay. IRS would have a hard time determining how much we paid for items in the first place.

The IRS doesn't work like this, though...you would have to determine the Fair market value to claim a loss..it's not what you paid for it...it's how much it's worth when you sell it...

I agree though..It's funny how items get taxed EACH time there is a transaction. you buy a car and pay sales tax...you sell the car, the buyer pays sales tax, he sells the car again, more sales tax:rolleyes:

hearingimpared

Refefer wrote:

It mentions only certain milestones. Makes me wonder what they will be.

Can you write off purchases from ebay as buisness expenses?

I would think you could write it off as a gambling debt, unless of course you buy from Russ!!!! LOL

snow

5k the limit huh? what if I sold 2 amps for $2500.00 each would I be reported? REGARDS SNOW

bobman1235

It says "100 transactions totalling 5k or more". That would be TWO transactions, so I would guess NOT reported.

snow

bobman1235 wrote:

It says "100 transactions totalling 5k or more". That would be TWO transactions, so I would guess NOT reported.

OK WELL EITHER WAY IT LOOKS LIKE ITS TIME TO START SAVING MY RECEIPTS SO I CAN PROVE THAT I AM TAKING A LOSS INSTEAD OF MAKING A PROFIT ON SOME ITEMS. OR PERHAPS IT WILL BE AN ACROSS THE BOARD SALES TAX CALCULATED ON GROSS SALES? REGARDS SNOW

Sami

krabby5 wrote:

The IRS doesn't work like this, though...you would have to determine the Fair market value to claim a loss..it's not what you paid for it...it's how much it's worth when you sell it...

Claiming a loss would be different from collecting income tax from a sale of used equipment. They can't tax you for it if you didn't make profit out of it, and have receipts to prove it. Business equipment, different story as you also claim losses each year for the lost value. Collecting sales tax, that's from the buyer.

In any case, they are only screening the sellers with certain amount of sales (more than 100 transactions a year worth at least $5,000). Most likely you made a profit as I don't see a private person selling that many used personal items.

polksda

What I think a lot of people are missing are differentiating between someone selling on Ebay as a "business" versus as a "hobby".

I sell far more than 100 items per year, well in excess of $5,000 total. I also BUY far more than I sell on Ebay. Most of my activity is buying and selling coins and stamps from my collections. I'll sell duplicates or break down a collection I purchased, retaining some pieces and selling or trading others. Many of the items I sell are sold at a loss.

The problem is that the IRS will only receive information on what I sold, not what I bought. They will see a sum dollar amount and see it as net capital gains, until I declare it on my income tax return and deduct expenses against the gain.

Bigger problem: documenting this in a manner acceptable to the IRS. Let's say I sell a coin for $25. It's part of a bulk lot that I traded a stamp collection for back in 1992. How exactly do I calculate a cost basis 15 years later?

If you don't have a receipt for each and every item, you're screwed. The IRS considers the entire sale amount as capital gain.

Most dealers at coin and stamp shows don't provide receipts. Most garage sales and flea markets don't provide receipts. This doesn't even bring trading/swapping into the mix.

People operating as a business won't have a problem. The hobbyist just selling off duplicates or remaindered stock is going to get buttf*cked on this bigtime...

ohskigod

it wont be a sales tax thing. sales tax is done bythe individual state tax agencies, not the IRS. this is purely an income reporting issue for individuals (reporting business incomes) or coporations (might be some dumb enough not to report the revenue since it is ebay)

hearingimpared

snow wrote:

OK WELL EITHER WAY IT LOOKS LIKE ITS TIME TO START SAVING MY RECEIPTS SO I CAN PROVE THAT I AM TAKING A LOSS INSTEAD OF MAKING A PROFIT ON SOME ITEMS. OR PERHAPS IT WILL BE AN ACROSS THE BOARD SALES TAX CALCULATED ON GROSS SALES? REGARDS SNOW

Yep, 100 transactions at $50 a pop and you need to prove that is wasn't income. My wife and I are planning to have a yard sale in the spring. . . we've a whole lot of things collected over twenty years, two separate lives. We had considered doing a good bit of it on eBay, I wonder if we did sell let's say 300 items and got over $5k for it if the IRS would consider that income? It is stuff that we paid for and are taking a loss on the initial cost of it.

RuSsMaN

I don't know man, it seems like double taxation, which is NOT supposed to happen.

Demiurge

Do you pay taxes at an antique shop?

Not saying this **** is right, but just saying it already exists elsewhere.

ohskigod

hearingimpared wrote:

Yep, 100 transactions at $50 a pop and you need to prove that is wasn't income. My wife and I are planning to have a yard sale in the spring. . . we've a whole lot of things collected over twenty years, two separate lives. We had considered doing a good bit of it on eBay, I wonder if we did sell let's say 300 items and got over $5k for it if the IRS would consider that income? It is stuff that we paid for and are taking a loss on the initial cost of it.

this really isnt what they are looking for. Even if you cross the "lets look at this" threshold of the IRS, doesnt mean they will automatically send you an audit. they might send you correspondence, if you write back that your sales in question was tons of stuff around the house you sold, probably no problem. Again, tis the ones who buy and quickly resell for the means of profit. that is a business, and that business profit is what they want reported.

there are MANY out in the ebay community that are businesses (they buy merchandise, they sell it......not hobby, but a business) and are not reporting the income. If you think of it from the other side, if you have a storefront store selling widgets, and a neighbor selling widgets over the internet. you are reporting profits on your income tax return, and ebay business is not. is that fair to you?

I really think you guys are discounting the genuine businesses that are just not reporting. Hell, working for my state tax agency, I found full fledged business not complying with tax laws, it was my job. They're out there, paying 0 taxes while you file a return every year like a chump.

hey man, I hate paying taxes like the next guy, and I dont want the hobbyists or casual seelers to get there balls busted as much as the next guy doesnt. but if someone is selling tons of items a year, and the same item....(like jewelry, keychains, whatever)...the ones you KNOW are a business, they should have to report the income on there return.

just my .02

ohskigod

and I still think you guys are getting sales tax and income tax mixed up

krabby5

Sami wrote:

Claiming a loss would be different from collecting income tax from a sale of used equipment. They can't tax you for it if you didn't make profit out of it, and have receipts to prove it. Business equipment, different story as you also claim losses each year for the lost value. Collecting sales tax, that's from the buyer.

In any case, they are only screening the sellers with certain amount of sales (more than 100 transactions a year worth at least $5,000). Most likely you made a profit as I don't see a private person selling that many used personal items.

you are correct...i didn't read his post correctly...

Demiurge

ohskigod wrote:

and I still think you guys are getting sales tax and income tax mixed up

My comment was in response to double taxation. Taxation is taxation no matter what name you want to put in front of it.

dudeinaroom

Great so buy 2010 does this mean they will be taxing garage sales? Or even stuff we sell here on the flea market. If they are that pissed about people slipping through the holes, tax the drug dealer talk about a **** load of revenue. Crap just legalize marijuana and tax that. I know the government "does not know how they would apply a tax to it" um..... hello they tax alcohol and don't forget cigarettes which is like 10,000,000% tax. Oh well I see there point, but weren't taxes supposed to end after WWII anyways?

ohskigod

dudeinaroom wrote:

Crap just legalize marijuana and tax that. I know the government "does not know how they would apply a tax to it" um..... hello they tax alcohol and don't forget cigarettes which is like 10,000,000% tax. Oh well I see there point, but weren't taxes supposed to end after WWII anyways?

you know, I've said that, and was told It couldnt be enforced. I said give me a badge, a car, and let me head the department, I'll yank in the cash hand over effing fist