# IRS Cracks Down on Underground Internet Economy



## Ken Scharabok (May 11, 2002)

Effective as of the first of next year money transfer companies, such as PayPal, will be required to report gross transactions if more than $20,000 for a calendar year. They will submit a IRS 1099 Form to the IRS, which will then trigger them to look at that person's tax report to ensure an accounting for those transactions is part of the package.

The limit of $20,000 is higher than the one-time transaction for cash today, which also requires financial institutions to report cash transactions over $10,000.

Apparently the IRS assumes if you are doing more than $20,000 in transactions it is more than just personal sales.

In my case gross transactions will be higher than $20,000; however, I already report by eBay business on a form for profits and losses from a small business.

This will apply to the 2011 tax year and beyond.


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## Bandit (Oct 5, 2008)

You forget to mention over 200 transactions in a calendar year will also trigger a 1099 from them . ( They are still arguing over this one on the boards ) I would think that with Pay Pal involved this will turn into a nightmare , the E-Bay Seller Central and Trust and Safety forum discussions are leaning that way too .
If they haven't been removed lately like everything else showing Pay Pal or a Mega seller in a negative way .


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## drmiller60 (Nov 2, 2010)

Wow, that sucks... Guess they found a way to pay for the 36,000 shotguns the IRS purchased...


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## ErinP (Aug 23, 2007)

> Apparently the IRS assumes if you are doing more than $20,000 in transactions it is more than just personal sales.


Yeah... 
Go figure. lol

Like you Ken, I already report all of this, so a 1099 would just make things a bit simpler when it comes time to do my Schedule C.


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## Terri (May 10, 2002)

Over 200 transactions a year? 

Dang.

I will have to be carefull about my income from surveys and from clicking on ads. Right now that is not a problem, but, I will have to make certain that it stays that way!


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## Nevada (Sep 9, 2004)

ErinP said:


> Yeah...
> Go figure. lol
> 
> Like you Ken, I already report all of this, so a 1099 would just make things a bit simpler when it comes time to do my Schedule C.


This really is a big issue. You are allowed to sell the stuff in your garage, and it's not required to be reported. After all, you aren't really operating a business. If you were buying product for resale that would be very different. If you are just selling-off the stuff in your garage or attic that should be exempt of income tax.

The fact is that you've taken a loss on virtually everything in your garage, even if you eventually sell it at eBay. In all fairness, they should be offering a tax credit for the depreciation on your stuff.

But I suspect that PayPal reporting will result in a lot of people paying tax on that sort of thing.


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## Ken Scharabok (May 11, 2002)

1. You can insist of a credit card (if you are set up to accept them directly) or require a personal check or money order. I've had something like 12,000 sales on eBay and over the past ten years or so have gotten one bad check and one bad money order. (The guy who did the latter spent time in jail for doing it to several people.)

(On eBay, under shipping instructions, I say, "Payment by PayPal unless other arrangements made". I'm guessing 99.9% of sales get paid through PayPal.)

2. On Form C there is a cost of item sold as a deduction. (E.g., sales against net inventory consumed.)

3. On each eBay listing form there is a box as to whether or not it is subject to state sales taxes. For personal items, don't check that box.

Personally, I make a copy of every non-personal item sold on eBay which goes with my other papers concerning the federal income tax. (TN does not have a state income tax.)

Its only a matter of time before states start requiring payment of state sales taxes at least on item sold within state of origin. Wouldn't be that hard for eBay to set up a single rate for each state, deduct it from payment and turn it over to state IRS.

I collect from buyers and then report to TN IRS any items sold within TN. Simple form once a quarter. Typically less than $20 to them. This helps me support a state sales tax exemption for items brought for usage or resale. For example, I have a card from Wal-Mart based on my exempt form. I divide up purchases against the business and personal items. For a trail il I typically pay for the exempt purchases with a credit card. At the electric/pluming/hardware store my entire account is non-state taxed. For anything I purchase for my own use I pay cash to keep it clean. Either the feds or state is welcome to audit me.

If you buy something at a flea market and they say the price includes state sales tax, chances are pretty high they are lying to you. They are pocketing that money.

Just a tip. Where there is some unusual activity on my IRS federal form I include a note explaining it. For example, for this year my farm expenses are high since the spring flood took about or badly damaged about 75% of my fences and left areas on the creek bank and fields which had to be repaired.


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## MoonRiver (Sep 2, 2007)

Good.


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## BamaSuzy (May 10, 2002)

Thanks Ken! As usual you are so helpful to us all! I always keep records as you do. But since I've expanded my farm store I'm not selling as much on line....but I'm making sure I keep good records here!

And I'm sorry about your fences! I didn't know the floods got you! suzy in bama


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## ErinP (Aug 23, 2007)

Nevada said:


> This really is a big issue. You are allowed to sell the stuff in your garage, and it's not required to be reported. After all, you aren't really operating a business. If you were buying product for resale that would be very different. If you are just selling-off the stuff in your garage or attic that should be exempt of income tax.


True enough.
Keep records and you shouldn't have problems. But I have to say, I highly doubt there are many people selling their garages full of stuff, making _$20,000_ worth of transactions.


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## Terri (May 10, 2002)

ErinP said:


> True enough.
> Keep records and you shouldn't have problems. But I have to say, I highly doubt there are many people selling their garages full of stuff, making _$20,000_ worth of transactions.


Me neither. But, it would be dead easy to make 200 transactions!!!!!!!!!!!


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## Bandit (Oct 5, 2008)

I think it will end up just like with the bank's copying and forwarding All Checks over a low minimum amount to the IRS " just to be on the safe side ) 
I would picture Pay Pal being Very Safety conscious .
Do You Really Trust the I R S ?
IRS holds meetings in Las Vegas casinos and ask's casino workers to report anyone that might look suspicious to them , ( Ex. anyone spending over $ 5,000 in cash ) they also suggested that the Employee also Google the person's name to see who they are and if there name should be reported for any suspicious activity ? 
I am safe , I have never gone into a casino with more then a $ 20.00 , now My Wife on the other hand %#^&*@ 
Bob
http://launderingmoney.blogspot.com/2010/08/irs-recruits-casino-workers-to-track.html


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## barelahh (Apr 13, 2007)

One of the main reasons i take cash and paypal only. I give discounts for cash.


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## Kevingr (Mar 10, 2006)

There's a guy I know and my brother was his yearend tax guy. The IRS seized his business and accounts because one of his employees said he was cheating on what he was reporting as income. It even made the papers in St. Paul. His business was finished. I called my brother to see if he would be in trouble and he said no. There was a big investigation and the guy was hiding some income. After my brother met with the IRS and they got everything figured out had he reported the income he had enough losses to cover the income. Bottom line he didn't owe the IRS any money anyway after they got it all straightened out, but his business was finished and he has no income anymore.

Bottom line, if it's not in cash report it, and don't include others, or discussion boards, in your scheme's.


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## ErinP (Aug 23, 2007)

Terri said:


> Me neither. But, it would be dead easy to make 200 transactions!!!!!!!!!!!


Yep. 
But I can account for every transaction I've made this year, and it's a bit higher than 200. 
The lesson here is: Keep records.


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## FarmerGreen (Dec 11, 2007)

ErinP said:


> But I have to say, I highly doubt there are many people selling their garages full of stuff, making _$20,000_ worth of transactions.


I've started cleaning out the music room and am gonna be putting some on ebay. With the price of vintage guitars and amps these days it _could_ go over that. I keep good records anyway. I doubt if I'll do it all in one calendar year though. No rush...


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## edcopp (Oct 9, 2004)

This is interesting. I thought that PayPal was operating from the Netherlands. If that is the case it seems like they would just tell the IRS to buzz off.

The presumption of guilt that the IRS seems to operate on is caused by the hogs who do business and keep no records. They will be the first to tell you how Honest they are. What they are is a bunch of tax cheats. 

Be aware that if you do keep good records, and are among the few who do actually file your tax returns properly; you will be the first to be audited. Don't blame me blame the hog who does not file.

I personally think that we should do it one way or the other. Either we all file like we are supposed to do (supposedly), or none of us file. If none of us filed then the government would need to find a sensible way to collect taxes, but that is another thread.

Now somebody mentioned requiring a credit card, check, or money order. I think that none of the above is legal tender so that may create another problem. The Federal Reserve Note has a blurb on it that indicates that it is legal tender, good for all debts public or private. That system is about to crash too. 

This should be fun to watch.:bash::grin:


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## Nevada (Sep 9, 2004)

edcopp said:


> Now somebody mentioned requiring a credit card, check, or money order. I think that none of the above is legal tender so that may create another problem. The Federal Reserve Note has a blurb on it that indicates that it is legal tender, good for all debts public or private. That system is about to crash too.


Well, at eBay the Fed has no power. EBay policy trumps everything.

You can no longer list items at eBay unless you allow payments to either PayPal or one of the approved credit card merchant account providers. You may also accept checks & money orders, but you'll find that most eBay customers will use PayPal if that option is available to them.


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## FarmerGreen (Dec 11, 2007)

edcopp said:


> I personally think that we should do it one way or the other. Either we all file like we are supposed to do (supposedly), or none of us file. If none of us filed then the government would need to find a sensible way to collect taxes, but that is another thread.
> 
> Now somebody mentioned requiring a credit card, check, or money order. I think that none of the above is legal tender so that may create another problem. The Federal Reserve Note has a blurb on it that indicates that it is legal tender, good for all debts public or private. That system is about to crash too.
> 
> This should be fun to watch.:bash::grin:


Well, the IRS will tell you it's all voluntary, but just try not volunteering. 

As to whether Federal Reserve Notes are good for ALL debts try using one to buy gas at some stations. Some have signs up saying they won't accept 50's or 100's. 
Yes, the dollar will crash, probably sooner than later, but it won't be fun to watch.


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## Bandit (Oct 5, 2008)

Why wouldn't a buyer want to use Fee-Bay and Not Your Pal , where else can they buy a product , use it for 45 days , then return it for a full refund including shipping by just stating it was SNAD . 
Unless You live in New England where We have a Close Out chain called Building # 19 , where the same people come in every year just before the Holidays and buy expensive Oriental Rug's , that then gets returned in 30 days , just after Thanksgiving and New Years .
I have used E Bay and pay pal before ( for those here that have said You don't use it ) ( I have used a posting ID. since 1999) , but it was a long time ago , and I refuse to use it again , if I have to share my bank account and all my banking info with them . If a seller doesn't trust a money order from the U.S.P.O. then I don't trust them .
We buy/sell at Craig's List , yard sales , Flea Markets , auctions , etc. and yes we do it all legal , a tax # gives you some great deals , plus the tax right off's .
I see on E-Bays own forums Sellers are still unhappy , except for Sandy and the Usual Cheerleaders running interference by asking a question to answer a question and posting endless policy quotes .
Bob
http://forums.ebay.com/db2/topic/Paypal/Down-With-Ebay/520244315


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## Bandit (Oct 5, 2008)

FarmerGreen said:


> Well, the IRS will tell you it's all voluntary, but just try not volunteering.
> 
> As to whether Federal Reserve Notes are good for ALL debts try using one to buy gas at some stations. Some have signs up saying they won't accept 50's or 100's.
> Yes, the dollar will crash, probably sooner than later, but it won't be fun to watch.


 Just pay for your gas in change , I have done it before when coming from a Fair , in mostly quarters . LOL :rotfl:
Bob


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## Mickie3 (Aug 28, 2010)

edcopp said:


> This is interesting. I thought that PayPal was operating from the Netherlands. If that is the case it seems like they would just tell the IRS to buzz off.


From Paypal's web-site: "PayPal is headquartered in San Jose, California and its international headquarters is located in Singapore."

Where they have their HQ means nothing, if they want to do business in the US or any states within, they have to comply with the appropriate laws, whether they agree with them or not means nothing.




Nevada said:


> Well, at eBay the Fed has no power. EBay policy trumps everything.


:hysterical: That was one of the best lines I have read in quite a while. I would wager that there are those that believe it, too.  

I ran my own business for several years and have never been audited in my entire life, however, I paid any and all taxes due and always had the records to back up any and all items on local, state, and federal returns. To me, the prospect of paying an attorney any more than I had to was just absolutely ludicrous.


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