April 13, 2007 3:50 PM PDT

Selling stuff online? Here comes the IRS

Americans who sell items through Internet auction sites could be in for an unpleasant surprise at tax time next year, thanks to an IRS proposal designed to identify taxpayers who don't report income from those sales.

The U.S. Treasury Department wants Congress to force auction sites like eBay, Amazon.com and uBid.com to turn over the identities and Social Security numbers of a large portion of their users to the IRS--so tax collectors know how much each person made through online selling.

The effort is part of a larger plan, which enjoys enthusiastic support from both Democrats and Republicans, to close what's known as the "tax gap." It's a broad term that covers Americans who don't file tax returns or those who underreport their income, and the IRS believes it to total around $345 billion for the 2001 tax year.

But the proposal is likely to encounter stiff opposition from Internet auction aficionados, free-market advocates and the auction Web sites themselves, not all of which are large enough to be able to comply with the rules without financial hardship.

"It's a total nightmare," said Matt Stinchcomb, vice president of marketing for Etsy.com, which allows people to sell handmade goods. "Our goal as a company is to allow people to make a living making things, and this is just another impediment to that."

Stinchcomb said Etsy would be uncomfortable asking its users to divulge their Social Security numbers, which are required on the IRS 1099 forms used to report untaxed income. "There are so few things now that are private and sacred," he said. "I feel like your SSN is one of them. Imagine, too, if every e-commerce site starts requiring this, the amount of times that data will be collected or falsely collected. There's a huge potential for fraud and identity theft."

But Washington politicians are looking around for any idea that will increase tax revenue without a formal vote to raise taxes.

At a recent hearing, Senate Budget Chairman Kent Conrad (D-N.D.) praised the idea of additional "reporting of money flows so the IRS has the ability to match up what was reported to what's actually happening." Another Senate hearing on the tax gap is scheduled for Wednesday.

IRS' history of targeting online auctions
The idea of forcing auction sites to invade their customers' privacy through IRS reporting isn't exactly new.

In July 2006, IRS official Nina Olson told Congress (PDF) that it should require "information reporting on gross proceeds from sales conducted on Internet auction sites." "One recent study found that 700,000 Americans reported that eBay sales constitute their primary or secondary source of income. The IRS must have the tools needed to address underreporting of this income," she said. Olson said the reporting requirement should begin when someone made more than $600 in a calendar year.

Olson renewed her request to Congress two more times, congressional records show, but it wasn't until the idea appeared in the Bush administration's proposed 2008 budget that Congress began to take it seriously.

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A Treasury Department analysis of the budget (PDF) says: "A broker would be required to make an information return showing its customer's name, address and Taxpayer Identification Number, as well as gross proceeds from the sale of tangible personal property." Unlike Olson's suggestion, though, it proposes the reporting requirement kick in when someone makes more than $5,000.

"The budget proposal has come out and people are looking for ways to close the gap, so they're looking at a lot of things, and I think we're just one idea that has come up," said Catherine England, a representative for eBay, which opposes singling out online auction sites to report on their sellers to the IRS. "What's happening is there's this assumption that people aren't reporting," she said. "There are a good number of people who are professional sellers on eBay. However, there's no evidence or any kind of statistic out there to indicate those folks aren't already accurately reporting to the IRS."

The company's own statistics suggest that there are 1.3 million people around the world who make their primary or secondary source of income through eBay, with just over 700,000 in the United States.

See more CNET content tagged:
auction site, tax, income, social security number, Amazon.com Inc.

55 comments

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a holes...
We pay income tax, tax on our property, tax on our gas, tax on our
food... just so the gov can waist it...

I think i'll start digging up that cache of ammo in the back yard...
Posted by Jesus#2 (127 comments )
Reply Link Flag
Replace Income Tax with Sales Tax
Tax the revenue stream at the point of sale instead of at the paycheck and this whole discussion becomes moot. It would be easier to administrate and enforce a national sales tax than the thousands of pages of our current graduated income tax code, it would also be more fair to the public in its applicablility. Everyone would pay the tax...no more tax loopholes for the ultra-rich.
Posted by armchair99 (3 comments )
Reply Link Flag
And that is why it will not happen in the US
No more tax loopholes for the ultra-rich? That is why the national tax plan will not happen anytime soon, if at all, in the US. The ultra-rich (inviduals and corporations) are the ones who run this government.
Posted by OscarWeb (76 comments )
Link Flag
Sales tax is regressive
Sales taxes hurt the poor because a larger percentage of their income goes to consumables.
Let's imagine two frugal traveling salesmen. They each have to buy a new car every four years to (say) keep up appearances, and they need reliable transportation.
(One guy makes 20K, the other 300K)
Run the numbers on a the RATE of total income each pays on on 5% sales tax.

Poor Boy buys a $20,000 car pays $1000 or 5.0% of his income.
Rich Boy buys a $60,000 car pays $3000 or 1.0% of his income.

Also most CEO's money comes from investment income, how would that be taxed?
Posted by kaufmanmoore (42 comments )
Link Flag
ASS BACKWARDS!
Sales tas is the single most REGRESSIVE tax there is. (if you don't know what that means look it up.) Therefore, sales tax (or VAT) should be abolished altogether!

There should be only two types of tax:

(1) Income tax that does not let the top 5% who make most of the income in this country weasel out of paying tax. This will only happen when investment income (where most of the "idle rich" (yes there really are such people!) get there income) get taxed at the same rates as income from wages.

(2) Earmark tax:
Taxes earmarked to support only specific public expenses. Like gasoline tax for highway maintenance. Property taxes to maintain Fire and Police departments.

Sales tax is the darling of conservative politicians who don't care whether you can afford to pay the tax or not.
Posted by batavier (66 comments )
Link Flag
Stop this tax now
You must be rich or haven't given it any thought. The sales tax would be a rich man's dream and a poor man's nightmare.
Posted by wdukeman (7 comments )
Link Flag
Yeah, This'll Work
I forsee a lot of "new" eBay IDs being created, most with gMail backing addresses and identifying information being bogus: fake SSNs or addresses in foreign countries. You can also count on sites popping up to help this.

Me? If the threshold was $5K and I was selling more than that in a year, I'd have <YearlyIncome>/$5K accounts, each with unique, bogus information. I don't think I'd be the only one.

Oh well, least it doesn't apply to me.
Posted by ferricoxide (1125 comments )
Reply Link Flag
Good point
It will spawn a whole new industry.
Posted by PCPrivacyTech (10 comments )
Link Flag
IRS Taxing
This will cause me to apply a 10-15% sales tax on my internet sales to cover the criminal IRS imposed tax reporting requirement.
Just another way for them to get their hand into my pocket!
-
Posted by spock_dog (3 comments )
Reply Link Flag
Double Tax
Why double tax things sold online on ebay etc.... Lets say I buy something at a store and I get taxed for it? Then I want to put it on ebay if I didnt like the item or couldnt return it? or if I bought an item anywhere else and it was already taxed once thats just a rip to me to be taxed again.
Posted by comptech2002 (1 comment )
Reply Link Flag
Better analogy
Yes, you were taxed at the time of purchase with a sales tax. But the real analogy is the double-taxation of INCOME. Example: I purchase a hard drive for $200 with money from my paycheck (money that was after-tax income from the paycheck). Then, I turn around and sell the hard drive on eBay three months later for $100. When I sell a used item (at half the price I paid with after-tax money), why should the same money be taxed again by the feds? It shouldn't. Taxing eBay sales with a federal tax is like charging a federal tax on garage sale income. It's wrong. It's a double-tax on working people who can't afford to shelter their income with fancy investment write-offs for the rich. Now, THERE is where you look to close the "tax gap." The whole "Free and Open Markets" baloney should apply not only to fat cat investors in China and India, but to sellers on eBay in AMERICA.
Posted by PCPrivacyTech (10 comments )
Link Flag
Not double tax
The tax isn't on the item itself the tax is on the icome that someone makes on the items sold.
Posted by ifiredmyboss.com (51 comments )
Link Flag
We Need a Different Approach
The IRS will never be able to keep people from under reporting or not reporting income. Everyone, however, tends to spend most of their income. If the US went to a national sales tax it would not only eliminate the problem of trying to keep track of all income, but would eliminate all the time and money wasted on tax preparation and reporting, encourage savings, and reduce the size of what I am sure is a huge, bloated, expensive agency.
Posted by cookcounty (2 comments )
Reply Link Flag
well you see...
it's an income source and like everyone else you have to file taxes, even if you work from home on eBay and other auction and marketplace sites. Until we do away with taxes for all these folks will not be able to avoid this, like the rest of us. We all pay taxes, it's a fact of life, get used to it.
Posted by dondarko (261 comments )
Reply Link Flag
Look again
It's only an income source if you sell for more than your expenses. If you are selling used stuff you have no further use for, it is loss reduction.

Different story for those making a profit.
Posted by Phillep_H (497 comments )
Link Flag
Taxing aution sales
Sounds like double taxation to me. You buy a product ,pay taxes on that product then decide to sell it later, and now IRS wants you to pay taxes on it again. We need a new tax program all together, so why don't they revise what we have now. Let's try to make it so it benefits not only the federal government, but the American citizens as well, instead of the many foreign countries that it has for too many years.
Posted by Smuvjz (1 comment )
Reply Link Flag
Flat tax
Flat tax everyone, then federal sales tax. Hold goverment
responsible for spending, balance budget.
It is a shame that federal budget is run by people with no business
sense.
Posted by twotall610 (53 comments )
Reply Link Flag
IRS
Govt crap has gone far enough...Time to pick up a gun and take back your country from the tyrants!
Posted by hassan_bin_sober (102 comments )
Reply Link Flag
or better yet
Actually take the time to go out and vote these idiots out of office.
Posted by TucsonAlexAZ (53 comments )
Link Flag
As a Canadian...
Why should I give the U.S. government my personal information for making an online transaction? The problem with governments is that they forget that the internet goes beyond their national borders.
Posted by mcclurec (10 comments )
Reply Link Flag
Taxing e-commerce is bogus
The problem with this typical knee-jerk idea is that it does not take into account any of the expenses of the sale. If they tax the amount of the sale on an auction site, they are ignoring the initial cost of the product, marketing (listing fees), handling, and postage.

A person may sell a refurbished laptop on e-bay for $900, but it may cost $700 for the laptop, another $30 in listing/closing fees, and $20 to package and ship. The auction site cannot account for those things. So under this proposal they would tax on the sale not the actual profit (income). In the example above they would tax on $900, not on the actual profit of only $150.
Posted by Methuss (101 comments )
Reply Link Flag
READ MY LIPS..........
Hey Bush,

What happened to the neocon "tax breaks"?

Here's your chance to create "smaller government", let Americans KEEP "their" money, and ditch this idea!

Get er Done!
Cowboy
Posted by geekpro (38 comments )
Reply Link Flag
Previously Owned Goods
...shouldn't be taxed.

Aside from this, an item's tax is based on what state it was sold in, and some states have no tax.

So this makes absolutely no sense whatsoever.

If I paid for an item and paid its tax based on what the state mandates, guess what? I don't owe anymore tax on it, my dear money-hungry government.

Junior got us into this deficit mess with his war over in the sand. He should've just left well enough alone. Now we've paid more than enough in terms of money and lives.

If my dear money-hungry government needs cash, look to Junior. Get HIS bank account number to withdraw funds from.

That goes without saying if you can - if he hasn't deleted it by accident along with all of a bunch of select emails... ^_^
Posted by `WarpKat (275 comments )
Reply Link Flag
Ignoring Big Corporate Tax Evaders... Again
The amount of tax dollars they can recoup from small businesses and individuals selling products over the Internet is nothing compared to what they could get if they actually enforced tax laws against the large corporations who engage in illegal and offshore practices to avoid paying their taxes. Of course, the latter can afford to hire lobbyists, but you can't. Remember that the next time you go to vote.
Posted by Xenu7-214951314497503184010868 (153 comments )
Reply Link Flag
Taxing Ebay
I have an Ebay store and the majority of the things I sell are my own personal items that I have collected over the years. Needless to say I have already paid taxes on these items. Why should I have to pay them again? If the government is going to tax Ebay sales then what's next....flea markets and yard sales?!?! I think the government needs to look to there own pockets instead of ours!
Posted by fancieart (1 comment )
Reply Link Flag
The FairTax is the solution.
The FairTax (<a class="jive-link-external" href="http://www.fairtax.org" target="_newWindow">http://www.fairtax.org</a>) is the best solution to the taxing problem the US has. A national sales tax would eliminate issues like this. Right now 50% of the country is paying 100% of the taxes. Under the FairTax, there is a Prebate. No one pays any sales tax on items up to the poverty level. After that, you pay taxes. There would be no second-taxing on items from eBay or any auction because the tax only applies to the first time something is sold.

The flat tax wouldn't work because that's what we had in '86 when Reagan got the tax code slimmed down. Look where that got us. Anytime you allow income to be the basis for a policy decision, class warfare is going to be a part of it. Eliminate the income tax and then everyone is treated fair.
Posted by Endbringer42 (1116 comments )
Reply Link Flag
IRS = Information Reporting System
Kudos to CNET for outing the IRS on their plan to gather data on online sales. It's not about the money, honey.

See my response at <a class="jive-link-external" href="http://blog.netchoice.org/2007/04/dont_make_an_on.html" target="_newWindow">http://blog.netchoice.org/2007/04/dont_make_an_on.html</a>
Posted by SteveDelBianco (2 comments )
Reply Link Flag
Not exactly.
Um... no. 51% of all government spending is on the military, past and present. The next big chunk goes to social security, and the final chunk to medicare. If anything, religious zealots supporting holy wars and geezers looking for a free ride should be cut. The rest of the government spending is almost negligible, but still incredibly large and important on an absolute scale (billions of dollars out of the trillions of dollar budget). Why should the poor be starving and living in poverty their entire lives, subjected to ****** public schools and either bare bones or non-existent medical care, and then left to feel the brunt of the tax burden supporting the riches political agenda? Fill me in on that one, please.
Posted by jkarhu24 (6 comments )
Reply Link Flag
What?
The poor aren't paying taxes now, so how are they staying in poverty because of the federal tax burden? In reality the rest of us are paying THEM because they receive more services from the government than they pay into it.
Posted by Endbringer42 (1116 comments )
Link Flag
Joke
Regulating the internet just might be the biggest joke out there. Small trading sites will pop up like herpes on Paris Hilton's nanner during a feverish outbreak. The new sites strengths: they don't sell out their customers by reporting to the IRS. How do they accomplish this? Easy. They're set up in Brazil, Nigeria, etc.
Posted by jkarhu24 (6 comments )
Reply Link Flag
Not true
Not everybody pays taxes. Just those stupid enough to get a drivers license, social security card, and rat race job.
Posted by jkarhu24 (6 comments )
Reply Link Flag
LOL
Use the second one.

Reply to story | Reply to this comment
Posted by Phillep_H (497 comments )
Link Flag
Rant
Didn't you see the movie, Team America: World Police? We're America. We the money, we have the power. We rule the world because we say so. Besides, people don't know what's best for themselves. Representative government? Schlepresentative government.

Twenty five percent of the population is inbred, Evangelical Christians. In the name of Jesus, we command the world to bow down to our agenda regarding discriminatory taxation and wasteful spending. Pass the collections plate, pass the 1040's, kill the brown people, and everybody say hallelujah!
Posted by jkarhu24 (6 comments )
Reply Link Flag
ehh.
Ahem... many wealthy people with investment portfolios aren't spending like crazy. Otherwise, they'd be poor.
Posted by jkarhu24 (6 comments )
Reply Link Flag
Enforcing already confusing tax code.
Over the years I've gotten mixed answers on whether your supposed to pay taxes for auctions. Until some story in January, I thought either ebay or the buyer paid the taxes. I've been selling my textbooks and other stuff since 1998 or so. If anyone is at fault it's the auction sites for not informing it's sellers of the tax code. And find it even more confusion that at least until sometime last year , most purchases online are legally not taxed. Some states outside of actual federal law are taxing online sales now. Hence it's still confusing and even if Iowa say taxes online sales, Best Buy might charge sales tax, but many other sites don't.

The entire tax code needs to be re written, it sounds like something the Bush admin would be looking at and I'm kinda disappointed that democrats would as well.

This whole situation would have the potential to be far more problematic for most americans than the RIAA and file sharing. I assume actual buisinesses know how to sell, but normal Americans probably have no idea. Which would include me. And to be nice to others I've sold stuff for others and paid them what I made off that, but then I'd be liable for selling others stuff.
Posted by PatrynXX (6 comments )
Reply Link Flag
Taxing EbaY
well said!
Posted by edfdfrfrsd (1 comment )
Reply Link Flag
 

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