IRS Advisory Committee Wants Online Auctioneers To Have To Pay Taxes (USA TODAY)

Andrew Vachss' books have been described as investigative novels, because they often reveal news before you can read it in your newspaper. Case in point: In Dead and Gone (2001), he wrote about a shoe waiting to drop on people selling merchandise on online sites. Last month, the IRS dropped that shoe.

From Dead and Gone, p, 255:

"Look at the pattern, Burke. Come on. This guy buys a book for, say, less than two dollars. He gets it signed. Then he sells it for forty-five dollars on this Internet auction site. Do you think, for one single solitary second, that he declares that profit as income?"

"Of course not."

"Good. Now multiply by . . . oh, ten million transactions per year."

"Are you serious?"

Not a brilliant question to ask Lune. "Come closer," he said, pulling back from the screen so I could do it. "Take a look as I scroll through for you. See how every single seller and every single buyer has to provide information just to participate? Their e-mail, a credit card, a street address . . . a ton of authentic data. What you see here is the clearest, cleanest audit trail that any IRS agent could ever dream of."

"Damn!"

"Sure. All they have to do is watch. That is, if they didn't set up the site themselves there's so many of them, now."

"What a sting that would be. Jesus."

"Net people aren't the only ones. But they're certainly the easiest."

And now ...

IRS Advisory Committee Wants Online Auctioneers To Have To Pay Taxes

By Kevin McCoy
USA TODAY 11/20/2006 12:39 AM

Attention online auction sellers: An IRS advisory committee wants you to pay federal income taxes on your profits.

Anyone who sells goods online should first be required by law to submit a federal tax identification number, a change that would enable the IRS to track the transactions and seek any taxes owed, the committee recommended in a new report to the federal tax-collection agency. The recommendation is similar to an enforcement option raised in August by the staff of the congressional Joint Committee on Taxation.

The IRS advisory panel of tax specialists, citing the rapid growth of Americans selling via eBay, uBid and other online sites, said it's likely that "a significant number of those users either choose to ignore income reporting requirements or are unaware of their obligations."

"We're trying to help close the tax gap" between what Americans actually earn and what they report to the IRS, said committee member Rachel Paliotti, corporate tax manager for Blue Cross & Blue Shield of Rhode Island.

The non-government panel's report cited IRS data that estimated non-farm sole proprietors under-report 57% of their annual income. The committee also highlighted a 2005 eBay-commissioned report by ACNielsen International Research that said more than 724,000 Americans described the top online auction site as their primary or secondary source of income.

"These kinds of transactions probably contribute to the tax gap," Paliotti said.

Although the IRS has no estimate of under-reporting specifically by online sellers, the agency estimated that unreported capital gains by all businesses totaled $11 billion for the 2001 federal tax year.

The IRS could target suspected online under-reporting by requiring Internet business sites to get tax identification numbers from all sellers, the committee recommended. Sites like eBay and uBid would use the numbers to file duplicate reports of sales transactions with the IRS.

The IRS website already features a page designed to remind online sellers that they "may have tax responsibilities." Supplementing that effort with a new income-reporting requirement would require an amendment to the tax code, Kevin Brown, head of the IRS Small Business/Self-Employed Division, told the committee. He said the IRS would forward the recommendation to the Treasury Department.

Hani Durzy, an eBay spokesman, declined to say how the firm might respond if Washington enacted an income-reporting requirement aimed at online sellers. However, he said, "We've always encouraged our sellers to comply with the law, whatever the law might be."

Source: http://www.usatoday.com/money/perfi/taxes/2006-11-20-irs-usat_x.htm

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