Nate Anderson of Arstechnica reports that the US Internal Revenue Service (IRS) is planning to require auction site eBay to disclose how much money its individual sellers make in a year. This is to ensure that those who make significant amounts of money off eBay transactions correctly report these in their tax statements, and therefore pay the corresponding income taxes. Government estimates that this move will rake in as much as $2 billion annually–not a paltry amount.
In short, the US government wants to treat eBay as a “broker” who would then be required to file notices with the government about how much money its traders have made. The US proposal calls for this reporting to take place only when people sell more than several thousand dollars worth of merchandise in a year.
Government wants to tax sellers who make at least 100 transactions or $5,000 annually from eBay. A report on SFGate cites some important statistics that might be useful in justifying such a move.
Virtually all tax filers — 96 percent — pay what’s owed on income that is reported to the IRS by a third party, such as when a bank reports interest earned on a savings account, according to the IRS. However, when a third party doesn’t tip off the government, compliance drops dramatically, to below 50 percent.
eBay sellers report their income derived from the service to the IRS on a voluntary basis. Therefore, it is likely that a majority of concerned users does correctly report earnings.
The issue is not about new taxes, since the money that the IRS is going after is after all a tax that is already required, being derived from income from transactions. However, the issue here is that eBay claims the IRS is being selective in requiring only eBay and not other similar services. This, eBay claims, would put the company at a competitive disadvantage, since sellers who would rather not report their actual income from auctions and eBay sales might move elsewhere. For instance, in a Financial Times report, eBay cites other online services like Craigslist serve only as classified ad listings, and transactions are done off-site. Therefore, these do not necessarily fall under the type of service that the IRS is looking to go after.
eBay claims that it cannot be classified as a broker, because it never handles the merchandise that users sell. Also, eBay may not be able to authoritatively report whether a transaction has indeed been completed (items sent, payments paid, and all) and this might result in inaccurate reporting to the IRS. However, definitions/classifications can be changed by law.
For now, eBay believes that it’s a seller’s responsibility to report earnings from transactions made through the service, and pay the corresponding income taxes.