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IRS May Ask eBay To Snitch On Sellers 418

Posted by kdawson
from the taxman-cometh dept.
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."
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IRS May Ask eBay To Snitch On Sellers

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  • + tax (Score:2, Interesting)

    by iknowcss (937215)
    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 (Score:5, Informative)

      by LFS.Morpheus (596173) on Saturday February 24, 2007 @10:44PM (#18139066) Homepage
      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 (Score:5, Funny)

        by pla (258480) on Saturday February 24, 2007 @10:51PM (#18139128) Journal
        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 (Score:4, Interesting)

        by Ucklak (755284) on Saturday February 24, 2007 @11:11PM (#18139308)
        If it's going to come to State tax, you might as well do Craigslist and avoid the Ebay tax altogether.

        • 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.
          • Re: (Score:3, Informative)

            by rsborg (111459)

            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 eBay's servers. Craigslist is merely a messageboard (with some great search functions) and since they don't make any $$ off the sale, the price, completion, etc are all not recorded on the Craigslist servers... thus completely anonymous.

            Buyers and ellers o

      • I'd be curious how it'd go with the income tax bit. I've never sold anything on eBay for more than I paid for it.
        I've always taken a loss, but I have no real way to prove it.

        Closest I could some to would be to try to find an archived catalog of the item, since I know I bought it new.
    • Re:+ tax (Score:5, Informative)

      by patio11 (857072) on Saturday February 24, 2007 @10:48PM (#18139112)
      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
      • by patio11 (857072)
        You'll note I don't sell calculators. D'oh. In my defense, I guesstimate my personal tax burden as a third and wrote 30% to not have to worry about rounding error. *sigh*
    • by AK Marc (707885)
      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 selling on ebay are running businesses, but are lying on their 1040 forms regarding income. The IRS is looking for one and only one thing, the ability to track people that lie on their tax returns. If you aren't a liar, then you have no new tax and nothing
    • by Zordak (123132)

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

      It's actually not a "new" tax---it's tax on income you're obligated to report anyway. Ironically, if you add in tax to the sale price to compensate for the tax you'll have to pay, it's deemed income (because you got somebody else to pay your tax obligation). So the IRS will tax you on that. But then if you get somebody to pay THAT tax for you, they leave you alone, because that's what

    • by Americano (920576)
      Not really a sales tax... a sales tax is typically added as a % of the cost of the product, and goes directly to the state in which the tax is levied.

      This is an income tax, which means that of the profits a person makes, they will need to declare that income on a tax form, and pay a % of that to the government as taxes. In effect, the government is coming along and saying, "Yes, you owe us 20% of that income as taxes." This isn't really a "new" tax, as you're supposed to declare all income on your year
  • So.... (Score:3, Insightful)

    by whoop (194) on Saturday February 24, 2007 @10:41PM (#18139044) Homepage
    Just create multiple accounts, each keeping within the $5000 annual limit. Take that IRS!
    • Re: (Score:3, Insightful)

      by Anonymous Coward
      Too bad tax evasion is a crime, huh?
      • Re: (Score:3, Funny)

        by Anonymous Coward

        Too bad tax evasion is a crime, huh?
        So is anything but Missionary Position in some states, what's your point?
  • by Timesprout (579035) on Saturday February 24, 2007 @10:42PM (#18139052)
    fucked over for US sales tax.
    • by JeffSh (71237) <jeffslashdot&m0m0,org> on Saturday February 24, 2007 @10:51PM (#18139130)
      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.
      • or even cite.
      • Europeans should not be taxed by a US seller, but they are responsible for customs and duties which is roughly equivalent to the VAT/GST and such that Europeans pay for domestic purchases.

        A Michigan resident is required to report and pay use taxes for out-of-state purchases on their 1040-MI form. Use tax is basically a renamed sales tax on items purchased out of state. You can dodge it by lying about it on your tax form, but it might become an issue if you get audited. Thankfully there is an inexpensive
    • 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 first place.
    • 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, and if I order from a web site in some other state, I don't pay any sales tax, because the order is coming from out of state. It's thus interstate commerce, and I believe that states do not have the legal authority to tax that.

      In the US, sales tax is

    • 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 perhaps billing) address that is *outside* the US, that tax won't get applied. Last time I checked, Europe wasn't in a US state. Of course if you buy something and ship it to a friend/relative/whatever in the US, you might then have to pay sales tax depending o
  • Is there some law? (Score:3, Interesting)

    by Frosty Piss (770223) on Saturday February 24, 2007 @10:43PM (#18139056)
    I'm not upon this stuff, but is there some law that says everything has to be taxed?
    • by AvitarX (172628)
      If you make money it is income.

      Income is taxed.
      • by JeffSh (71237)
        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 minus cost) is quite clear.
      • 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 business?
        • by dave1g (680091) on Sunday February 25, 2007 @12:24AM (#18139856) Journal
          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.
    • 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, except one.
      Politician: What do you mean?
      Third Official: Well, er, smoking's been taxed, drinking's been taxed but not ... thingy.
      Politician: Good Lord, you're not suggesting we should tax... thingy?
      First Official: Poo poo's?
      Third Official:
    • by Grech (106925) on Saturday February 24, 2007 @10:58PM (#18139194) Homepage
      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 ! (Score:5, Insightful)

      by fantomas (94850) on Sunday February 25, 2007 @06:48AM (#18142020)
      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.
  • 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 which they are supposed to declare their profits to the Internal Revenue Service. Many users, however, ignore the law or are unaware of their obligation.
    • But if you own something, you bought it. So it was an expense to begin with. Most things you sell on Ebay, I doubt you get the same as you paid for it, let alone more. So how, exactly, is that a profit? Hmm. Maybe this isn't such a bad thing. I'll just claim the stuff that I sell on Ebay as a loss.
  • Damn, now when we hit people up for sales tax, it actually has to be used for sales tax.
  • Hmm (Score:4, Interesting)

    by bperkins (12056) on Saturday February 24, 2007 @10:59PM (#18139208) Homepage Journal
    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 (Score:5, Insightful)

      by ScrewMaster (602015) on Saturday February 24, 2007 @11:14PM (#18139330)
      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.
      • I see a lot of people complaining about the taxman taking money from me. Well, I for one welcome the opportunity to pay taxes. You see my taxes are used by the people I've placed in office (efficiently or not, that's besides the question) to do things that benefit me. I can see a doctor for free. If I need an operation, I can have it for free. I drive on a road paid for by my taxes. You see, I see the benefits of my taxes everyday.
        I have also lived in a country (3rd world, non-oil rich country) where there
      • That doesn't make such "reporting" intrinsically right, in anything but a legal sense.

        A large portion of the US population can't even keep themselves out of long term credit card debt. If the IRS didn't get their cut before payday, most of the population would be in prison for defaulting on their income tax bill. More realistically, the government would have serious cashflow problems with very bad economic repurcussions.

        The bigger transgression is from the states that want to collect consumption tax on cros
        • Perhaps, but historically the United States Federal Government didn't require anywhere near the cut they currently demand. It wasn't really until World War II that the Feds got used to the massive cash flow from the personal income tax. The Federal Government, for a couple of hundred years, really, got along on tariffs and other such sources.

          Either way, it doesn't make withholding any less sleazy, or morally bankrupt. It's MY money, and I earned it. The fact that they don't trust us to pay them the exorb
    • Re:Hmm (Score:4, Interesting)

      by omeomi (675045) on Saturday February 24, 2007 @11:15PM (#18139338) Homepage
      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.
    • Yeah, I gotta agree with "screwmaster" (and I'm hoping he's into carpentry). Reporting someone elses income is always snitching, especially when you do it wrong.
  • Cry me a river (Score:5, Insightful)

    by spiritraveller (641174) on Saturday February 24, 2007 @11:01PM (#18139226)
    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 (Score:4, Insightful)

      by Adeptus_Luminati (634274) on Sunday February 25, 2007 @12:11AM (#18139740)
      "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]
      • by frdmfghtr (603968)

        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:

        Before you go making such a claim, you may want to read Title 26 USC Internal Revenue Code [cornell.edu]

        No, I have not read it yet, other than a glossing over. It deserves closer examination, but it looks pretty much like the law that the income tax burdern is in fact written into law.

        Now, as far

  • 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?

    • This is not about sales tax. It's about income tax. The sellers are already supposed to be reporting their incomes anyway so this shouldn't change a thing for them...unless they're not reporting what they're making.
      • So that IRS want the Full $50 that you go form what you are selling even it cost you more to buy it or you payed $25 for it.
  • by dada21 (163177) *
    ...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 average taxpayer -- or even the non-average taxpayer.

    The tax experts surely want the IRS to inquire to eBay and Yahoo because that means more business for them. For me, my biggest tax preparer prepared filings were years that I had more than a few businesse
    • by ScentCone (795499)
      I hate every CPA and tax accountant I've met. I tell them this.

      How's that working out for you?

      Anyway, please don't sugarcoat it. Tell us what you really think.

      Alas, a simple flat tax is as likely as that Libertarian watch.
    • I think your anger may be misguided. I know of one CPA who gave up his practice due to the insane IRS regulations.

      Private CPAs do not make tax code. The IRS doesn't give a damn what CPAs think.

      The USA Treasury gets all of it's power from the USA congress, maybe that's who you should blame.
  • 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.
    • by skelly33 (891182) on Saturday February 24, 2007 @11:35PM (#18139506)
      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.
  • Quinton [iboxpublishing.com] on taxes.


    -FL

  • Why should you pay federal income tax?
    Why pay social security tax?
    You don't have to. Just tell your Representatives in Congress to vote YES to Fair Tax [fairtax.org]

    The FairTax plan is a comprehensive proposal that replaces all federal income and payroll taxes with an integrated approach including a progressive national retail sales tax, a rebate to ensure no American pays federal taxes up to the poverty level, dollar-for-dollar revenue neutrality, and the repeal of the 16th Amendment. This non-partisan

    • by The Rizz (1319) on Sunday February 25, 2007 @01:02AM (#18140194)
      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: (Score:3, Funny)

        by bhmit1 (2270)
        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 should find a solution that encourages people to earn money and grow the economy, not to discourage income. For a healthy economy, we need to be encouraging more people to be producers, inventors, business creators, etc. And yet, these are the most taxed in
  • Selling Price - Cost of Sales = Profit

    Therefore tax is very little and should not be calculated on the gross.

    It just means that sellers must do their bookkeeping properly.

    Most people sell second hand schtuff and don't really make any profit at all.
  • How would this be implemented?

    Will everyone who sells now have to enter a SSN or fed tax ID?

    What about selling from overseas?

    What if one doesn't have a SSN or fed tax ID?

    How will the auction sites verify this information?

    Will they be held liable if someone gives false information?

  • Ebay snitching would only hurt ebay's business. Why shouldn't ebay say: "sorry IRS, collecting taxes is *your* business - you figure out who owes you what."
    • Re: (Score:3, Funny)

      by ArsonSmith (13997)
      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 audited every year?" IRS points to thier saying no and people ebay sales start going to IRS.
  • Since eBay's high fees would be deductible from income earned by selling items on eBay (yes, even if it doesn't qualify as a business), most sellers would have no additional tax burden to speak of.
  • Cost of Goods Sold? (Score:5, Interesting)

    by marklyon (251926) on Sunday February 25, 2007 @12:57AM (#18140150) Homepage
    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"?
    • by mapmaker (140036)
      They aren't talking about you. They're talking about people who make their living selling things on ebay.
    • It depends. (Score:3, Informative)

      by raehl (609729)
      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 income tax on the money you spent on the laptop, so getting some of it back selling it later isn't taxed.
  • "it could drastically reduce the profits a seller would make on these sites."

    How so? Profits would remain exactly the same. For all law abiding citizens who declare all income, nothing would change at all. They go to church, pay their taxes, and help their land-lady carry out her garbage. However, for those who don't declare their income, well... yeah, I guess the tax man cometh.

  • It's funny how you can owe anybody money without fear of prison time, except Uncle Sam.

    Well then, how about we audit the damn U.S. government and hold THEM criminally liable for wasting our tax dollars?
  • In other news, the IRS is encouraging strip malls to snitch on the stores leasing mall space. Sheesh.

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