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AuctionBytes Blog
Covering auctions, collectibles and marketplace selling.

AuctionBytes Blog The AuctionBytes Blog has been giving a voice to online merchants since its launch in 2005. Named one of the world's top 30 blogs in 2008 by "Blogging Heroes." Weigh in with your thoughts on the joys and pitfalls of selling online.
Mon Dec 20 2010 20:56:40

PayPal Puts IRS Rumors to Rest

By: Ina Steiner
Sponsored Link
eBay's online-payments subsidiary PayPal has already begun asking some merchants for their tax ID numbers to help them comply with a new tax law, but PayPal said it would not expand beyond the IRS reporting requirements it is obliged to follow for tax-year 2011.

Rumors have been surfacing about how a new requirement might impact small sellers who accept PayPal payments. I've been writing about this issue for AuctionBytes.com since the new requirement was included in the Housing Economic Recovery Act of 2008, and some sellers are clearly still nervous about the implications of the legislation.

The law requires banks and other payment settlement companies that processes credit cards, debit cards, and electronic payments to file a new form, Form 1099-K, telling the IRS what online and offline merchants receive in payments, effective for the 2011 tax year.

For any person or entity that is selling goods or services and receiving payments through a payment processor, the money collected from sales will be reportable on Form 1099Ks - if they exceed $20,000 and 200 transactions in one year. (The "and" means that merchants who receive 1,000 transactions totaling $19,000 would not be affected - both criteria are needed to trigger the reporting requirement.)

One rumor circulating is that PayPal would issue 1099Ks for sellers with payments lower than the required thresholds. A PayPal spokesperson said this was incorrect. "PayPal will be using the IRS thresholds for reporting (merchants receiving over $20,000 in gross sales volume AND 200 payments or more)."

There has also been talk of sellers leaving eBay because of the reporting requirement, and that sites that allow sellers to advertise that they accept non-electronic forms of payment (checks, money orders and cash) may benefit from any such exodus.

Note that the law does not change sellers' existing obligation to report income. Some sellers who are in compliance and pay their taxes simply don't want to deal with more paperwork, while others may be wary of just how the IRS will use these reports.

PayPal has already begun collecting tax ID numbers - social security numbers for individuals and sole proprietors, and TIN or EINs for businesses. In response to my inquiries, a PayPal spokesperson said the following:

"PayPal has not begun reporting and will not report any payments received in 2010. Transactions occurring prior to 2011 will not be affected by this legislation. Starting in 2010, however, PayPal began asking impacted merchants to update their account by adding their SSN/TIN/EIN to their existing account(s). This information will only be requested from merchants that are potentially impacted by IRS requirements. If you are required to add this information, we will notify you via email and include an alert in your Account Overview."

Individuals and sole proprietors can obtain a Tax ID Number if they don't wish to reveal their social security number to payment processors. You can read more information on the PayPal website.

Sellers should be wary of phishing emails from scammers pretending to be from  PayPal or the IRS, or any other payments processor such as credit card merchant account services.

Reading AuctionBytes Blog: PayPal Puts IRS Rumors to Rest
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Readers Comments

PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Red Ink Diary This user has validated their user name.
       Web Site
Mon Dec 20 22:29:39 2010
I just do not understand.

Nobody in their right mind would want to play games with the IRS.

If you are a business and keep proper books what is the big deal?
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Jim This user has validated their user name.
       
Tue Dec 21 00:31:04 2010
Yea At 200 and 20,000 this is not selling a few items like a garage sale, this is a business.  
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Rick1313
       
Tue Dec 21 00:41:22 2010
The last line entry on Ina's post is just as important as the new regulation is and cannot be repeated enough times.

BE AWARE THAT YOU MAY BE RECEIVING PHISING EMAILS.

Social Security Numbers are a prize possession for identity theft scammers and can cause nightmares to the affected person.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: KoP_Seller
       
Tue Dec 21 06:37:54 2010
Well, it wouldn't be a story about eBay without sellers talking about boycotts and conspiracies. How about this? Pay your damn taxes.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: watchme
       
Tue Dec 21 07:10:20 2010
As history reveals " I wouldn't bet the kitchen sink on what Failpay is telling everyone right now. Like their owner Fleecebay the rules change daily."
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: nancy
       
Tue Dec 21 08:24:37 2010
Whaddaymean NEW tax law??

YOU HAVE TO PAY TAXES ON ALL YOUR INCOME. IF they catch you, guess what they do?

I know people who successfully evaded taxes for YEARS. THEY make up a number, and you get to pay BACK taxes, forget 2011.

Do you have any of your profits left from 2009, say?

Bet ebay got most of it. I will bet that all the scammers who don't pay tax WILL quit ebay. And if they're smart, they will go hide somewhere.

And just for kicks:

Don't give your social security number to ANY BODY, EVER. Including your sister, your neighbor, your boyfriend, etc. Never give ANY personal info on an e-mail. (and for GODS SAKE when you sign up for some suspect "service" use a g-mail account. How about liztaylor @ gmail?)

The IRS is lucky they get my SS number.

You can never get a new one, so guard it with your life.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
This user has validated their user name. by: Ina
       
Tue Dec 21 08:59:19 2010
Someone asked on Twitter, "A friend would like to know How will PayPal report personal transfers as those are not *income*?"

PayPal and other payment processors are required to report the total of all transactions and will not distinguish (nor would they be able to distinguish) between personal and business transactions.

It's recommend you keep your business and personal accounts separate. The law was created to help the IRS identify under-reporters - if someone is processing large volumes of payments but is not recording income, that's likely to trigger a red flag.

During an audit, should you find yourself in that uncomfortable situation, you can show what the transactions are for - for that, you must keep good (impeccable) records. So if you do have some personal transactions mixed in, make sure you have the paperwork that proves they are personal transactions.

It's also up to you to keep track of refunds, returns, credits, etc. that might offset the total transaction amount for a given year.

Remember, you as the merchant are not required to do anything differently, you should already be reporting your revenue. To help understand the implications of 1099-Ks, it might help to familiarize yourself with Form 1099-MISC. Businesses are required to send regular 1099-MISC forms to independent contractors, who must report all of their income - the 1099-MISC just helps the IRS identify possible under-reporting.

Business sellers can deduct the cost of goods sold and other business expenses - you're not paying taxes on your gross revenues, you're paying taxes on your profit. I am not an accountant and am not giving tax advice, you can ask your accountant or contact the IRS and your state's department of revenue directly if you have questions.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Rich
       
Wed Dec 22 00:25:28 2010
Taxes are never simple and taxes scare people.  That's why this thread has so few responses.  And for those who say; "just pay your damn taxes"; I agree with you.  But taxes require proof of all purchases or is there is no deduction if audited. There is no proof; no receipts; when it comes to garage sales, Craigslist and many flea markets.  And for sellers of used items this is a big part of where they get their purchased inventory to resell. How does an ebay seller show proof of inventory purchased if they get audited by the IRS? And as word of this law gets out; good luck to sellers when they ask Joe Six Pack for a $100 receipt.  
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Ebay's Slow Death
       
Wed Dec 22 02:54:53 2010
Yes, figuring out taxes scare people! This will be one more form, which we will need to figure out how to deal with.

Every year I do our taxes for our small businesses. (Thank heavens for Turbo Tax!) At some point I always joke that figuring out a tax rule depends upon if it is a Tuesday, with a full moon, and if it is raining outside. If those all hold true, then A applies instead of B. This is just another piece of paperwork to try to plug into the system.

Those sanctimonious people who always jump into any tax discussion with, ''Pay your damn taxes'' seem to think we small business people are all trying to evade our taxes. Not true! Remember, it is us small businesses, middle-class and poor people who actually do pay the taxes in this country.  The big corporations and super rich, don't pay their fair share of taxes. They have expensive accountants who figure out all the angles. To them, I say, ''pay your damn taxes'' and stop using all your politically paid for loopholes to avoid paying any taxes at all.

We do, ''pay our damn taxes'', but figuring out how much to pay is never easy.  This new requirement will make it more difficult.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
This user has validated their user name. by: permacrisis
       
Wed Dec 29 11:59:30 2010
The $20,000 trigger is actually much higher than PayPal's old $6,000 one. Howcome no one ever mentions that?

As I recall, it was limited to I think 500 bucks a month.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Fruity This user has validated their user name.
       
Wed Jan 5 11:45:27 2011
and what happens on the reporting when it comes to those who have paypal accounts combos with the banks? Citi , Wells Fargo? They've got your info too and they're supposed to file the form. Paypal was supposed to give us all 1099's but they decided to fight it for years and because of them, taxpayers had to fund new tax forms and more IRS resources to "deal with this" Paypal wants to be treated "special" They knew this would impact their growth
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Eddie
       
Tue Jan 18 11:27:55 2011
So if you do 1,000 sales but gross under $20,000 NO TAX REPORTING no 1099-K. Now what if your a big seller in amounts not volume. Say you took in 100 or so payments of $500-2000... selling say like many all their high end merchandise they dont want or selling a car or two for a friend on eBay or selling their old Baseball Card Collection or say like an example If I want to sell my Hummel collection of say 50 pieces worth $300-500/each but paid more then that but want to liquidate as need cash - would over $20,000 but the 'AND' 200 transactions does not apply if I got LESS THEN 200 payments.... also does PAYMENTS I send when I buy things on eBay count as trsnsactions or only incoming payments???

Any help appreciated!
As I don't and can't prove on the loss I need to liquidate and bring in cash to get a 1099 for some $30-50k when its all stuff sold at loss just personal things or few expensive items just a $3000 car or something and few sales over the year like a Treadmill etc... I hope they can see people might in one year do things like this they say AVERAGE person has $4000 to $5000 in goods in house to sell on all those eBay infomercials and books on how many START eBay... now would people now whos FIRST YEAR ON EBAY who sell that $3500 treadmill for $800 that $25000 car for $14000 and things like that get a 1099 ... this is another BIG type of ebayer who uses to unload several dozen expensive items like one time then hardly ever use ebay again - doing ebay for now 12 YEARS I know many people like this.... Does the under 200 PAYMENTS but over $20,000 mean you won't be sent a 1099???

Huge question that is clear in general STATEMENT but expalined lacks they say 1000 sales but $19000 you wont but dosent say $32,800 sales or so but 120 transactions You don't qualify...

Anyone....help?

I am fine with taxes but the impossible way to prove I don't want a 1099 when I know and by my real means claim whatever is relative and only I know what paid but no proof and can't 1099 antique dealers bought furniture from years ago that would want to sell as really could use this year a $30,000 emergency fund by selling all my stuff...

I had some $190K in 1099-G from gambling and was easy to show losses over that one year but STATE tax still made me pay even though clear loss FEDERAL $0 but still while I lost some $40k gambling I had to pay state tax on $190K - I am afraid PayPal if over $20k but less then 200 would be as hard to prove as gambling winnings when you need to deduct loses....

Hope this helps and asks same questions others that this relates to are wondering?

Good luck to 2011, a decade later from the best of ebay to its first year being the most hated in this new decade China will take over and dominate ebay as they can sell producs cheaper, sell very rogue from China as hard to even know and they arent paying taxes they take PayPAl china and have their Alibabi...EBAY US and the US Goverment IRS have destroyed eBay which was at once the Golden paradise of a true equal opportunity Capitilisim where a housewife could start a small business.... as easily and same benefits/costs as a big business powerseller - today Sellers are treated as royalty or easily disregarded, account suspensions on 10 year powersellers after a single complaint, YET YET the biggest no no of SHILL BIDDING years ago today is done so much and never do I see any action taken AGAINST!!! I know real Auction world this is ILLEGAL in USA period, yet ebay is lax on shill bidding now it seems as I know dozens who do it and never get problems. In 1999 I recall getting 2 warnings/punishments on times I did to not sell an item - today its an epidemic you see so many people with 0 or 1 feedback buying HIGH price and not paying!

Well IRS question I hope to get answer on and share my thoughts/experience with 1099-G on and issues it brought - this another complicated issue like others mentioned about eBay.

sorry to rant!
All Veterans share this feelings I have.

SO , $35,000 or $40-50-60,000 payments BUT under 200 transactions would as it sounds MEAN YOU DONT Meet Criteria????

Best wishes to all!
contact me im mazzleauctions at gmail
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Steve
       Web Site
Tue Jan 18 14:37:23 2011
How does this effect Canadians selling in the US
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Boris Bedonuf
       
Tue Jan 18 14:40:15 2011
be assured PAYPAL will never look out for its customers. They will happily and eagerly assist the IRS in ruining you. Those self righteous on here all about"you have to report all your income" sound like wage slaves selling on the side. I will NEVER report what cash sales i don't have to. The IRS is my enemy.
Anyone that uses PAYPAl to give gifts or send money is a fool. Write checks or money orders. If the recipient has no bank account that is their problem. Using paypal outside of ebay is just plain dumb and masochistic.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Rick1313
       
Tue Jan 18 18:34:06 2011
To Steve's post...

How will this affect Canadian sellers using PayPal?

It does not, as this is an US government initiative being applied to US citizens. However...

Since 2009 eBay,inc. has been required to forward the list of $20,000/200 sales type of Canadian based sellers to Canada's income tax department.

Any affected seller was/is suppose to receive an email from eBay.ca saying that the information will/has been forwarded to Revenue Canada.

Canada's government went after sellers using eBay to sell their wares.

The US government went after payment processors (eBay sales or not) to get the info.

The US initiative is more strict than the Canadian one.

That is, until Canada does the same...and they eventually will do so.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Rick1313
       
Wed Jan 19 00:48:38 2011
It should be noted that eBay tried to fight releasing the info to the Canadian government tax department but lost in court.

It was not so much as trying to protect the sellers (re: privacy issues) as it was (still is?) trying to protect their bottom line.

eBay knows that, in giving this info, affected sellers may reduce their activity to come in under the threshold and, thus, not have their sales reported by eBay.

Less listings/activity means less income for eBay.

Sure enough, some of the Canadian sellers I get an eye on, who where doing over the threshold, vastly reduced their activity to actually stopping to sell from that id.

Creating new id's will not work as, if they are audited, the Canadian tax department will ask if they are using any other eBay id (or other selling venue?) to sell their wares.

Does one want to chance and lie about income sources?

I believe the US initiative will have the same effect on US citizens using electronic payment processors.

They will reduce their activity. This will have an impact on the bottom line for selling venues and payment processors.

How much? Only time will tell.

It's another reason for a company like eBay to try and attract larger accounts, instead of smaller accounts, as these type of businesses have their own separate website/business and have been declaring what they are selling and so are more stable.

Just an opinion on the matter
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: Kid
       
Fri Jan 28 05:49:12 2011
Hey guys,

So here is my situation.

I received a request from PayPal for my Tax ID or Social number, so they can start reporting my earnings to the IRS. I do not use eBay, just Paypal for my website.

Here is the thing. I do not live in the US, but my bank account is in the US and I am a US citizen.

I made over $20000 last year but only a few thousand for 2011 so far. I know that the new rule starts in 2011 so I still have a little time to buy before I reach the 20k threshold.

So, I am thinking that I only have 3 options here and want to get some opinions on which one is my best.

1- I change all my information in PayPal to use my Hong Kong bank account and Chinese address so I am no longer affected by this (hopefully?).
2- I open a whole new account using my Hong Kong bank and Chinese address and stop using the old one on my website.
3- I have my girlfriend use her Chinese bank account with Chinese address. I think this is the least desirable since Chinese people can only take out 50k from the bank unless they have a business account


I am currently living in China and even have my temp residents permit, so if I change all my PayPal info I shouldn’t have to submit anything to the IRC right?

Please help me out here guys. Thanks in advance!
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: boohoo
       
Wed Feb 2 19:49:11 2011
Anybody want to chime in on Eddie's comment?  This is the EXACT scenario I dreamed up when I first heard about the rule.  Why?  Because I could potentially sell $50,000 worth of used hosehold goods it I needed to, but would be at a loss.
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: HJ
       Web Site
Fri Feb 4 11:31:51 2011
The law says 200 Transactions but Paypal says 200 PAYMENTS.  I called Paypal.  First they told me that they were tracking transactions so payments received, sent, and even Printing a Shipping Label would all count towards the 200 transactions.  I told them that the Paypal website said that it says RECEIVED payments.  Then they told me that it was only received payments.  Paypal doesn't seem to know for sure.  So which one is it?  Paypal also told me that they won't ask for a SS# until I hit both criteria but the Paypal website implies that they may ask for that info before that.  Other people hav already been asked for their SS# this year based on last years sales.  One other thing, suppose you sell on ebay and Amazon?  I read somewhere that they will be combined but how can they combine them since neither one has my SS#.  Does that mean every seller on Amazon and Paypal will be asked for their SS# and then report the sales to the IRS and then the IRS will combine them to see if you meet both criteria?
PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest
by: boohoo
       
Wed Feb 16 12:25:49 2011
Anybody want to chime in on Eddie's comment?  This is the EXACT scenario I dreamed up when I first heard about the rule.  Why?  Because I could potentially sell $50,000 worth of used hosehold goods if I needed to, but would the IRS consider that I sold at a loss.
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