As the IRS attempts to close the so-called tax gap, it has one more tool in order to catch folks not reporting all their income. Under the new regulations, "third party settlement organizations" (read: Paypal) must report payments to a participating payee (read: eBay seller).
So who is affected?
Paypal will report a 1099-K for any of its eBay sellers with over 200 transactions AND net payments in excess of $20,000.00. Both conditions must be met. It is imperative that sellers keep track of what they paid for items they sold for their Schedule C. If not, the IRS will assume every sale is 100% profit, and will impose additional taxes accordingly.
Other notes:
The IRS claims that this burden of keeping track of and reporting 1099-K is not intrusive as companies reporting with reporting requirements typically have over $175 million dollars in assets.
However, these same regulations discuss how colleges and hoteliers can also be considered "third party payees." These are two examples:
- If a hotel allows a guest to charge a dry-cleaning bill to a local, but non-affiliated dry cleaner (by non-affiliated, I mean a dry cleaner not owned by the hotel), then the Hotel must keep track of and send out a 1099-K to the dry cleaner if there have been over 200 transactions and the total exceeds $20,000.00.
- If a college allows a student to pay a non-affiliated restaurant (again, one not owned by the college) to pay for meals with a "campus card," the college is also under a reporting obligation.
If you're concerned that you may have unreported income, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.
