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IRS Takes Closer Look at Sales on eBay

June 2, 2010

The Internal Revenue Service is going to be able to get a better look at eBay transactions starting next year, and that’s going to mean many online sellers will probably have to start paying taxes on their sales.

The changes will occur when a new statute goes into effect in 2011 that requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS. The provision was originally enacted as part of the Housing Assistance Tax Act of 2008.

The IRS has already been giving greater scrutiny to eBay transactions, as in a case decided just last month by the Tax Court involving an IRS employee who didn’t report her own eBay sales to her own agency (see IRS Employee Has to Pay Taxes on eBay Sales)

Not all eBay sales will be taxable, of course, as many sales are of secondhand items and are effectively sold at a loss. Taxpayers can also go the route of arguing that the sales constitute a hobby and not a business, as the Washington Post noted in a recent article. But beginning next year, taxpayers who sell more than $20,000 worth of goods annually and have more than 200 transactions per month will start to receive a 1099-K information form.  That includes eBay sellers and users of other online auction sites.

One beneficiary may be Craigslist, which acts as an online classified ad site, but doesn’t process transactions like eBay’s PayPal service, as an interesting article on BNet pointed out. However, Craigslist lacks the formal structure of rating online sellers and buyers found on eBay, not to mention the auction process that spurs buyers to bid on the items.

Whatever the outcome, the IRS’s new information reporting requirements are going to be one more issue for eBay’s increasingly pressured sellers to figure into their calculations.

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