Friday, June 20, 2008

Ebay sellers use FUD to fight against paying taxes

So today I got dinged from I think three different people about a Congressional effort to compromise our privacy by requiring eBay, Amazon, and all other online retailers to report our purchases to the government as part of Chris Dodd's proposed mortgage bailout bill. Now, this didn't seem like a Chris Dodd sort of thing to do, so I set to reading a bit. Let's start here, with a press release from some entity called "FreedomWorks". They make it sound as if this provision is going to affect "nearly every credit card transaction in America" and that it's horribly intrusive.

It's not. Quite simply, they are lying. Here's what the provision (S.AMDT. 4983 to H.R. 3221; see pages S5902 et seq of the Congressional Record) actually requires:
Each payment settlement entity shall make a return for each calendar year setting forth--
(1) the name, address, and TIN of each participating payee to whom one or more payments in settlement of reportable transactions are made, and
(2) the gross amount of the reportable transactions with respect to each such participating payee.
In other words, what this does is require "payment settlement entities" (basically, credit card processors and alternative payment processors such as PayPal) to report, for each person who receives funds as a result of processing transactions on behalf of that person, a report to the IRS of the total amount of funds received (over the year) as a result of such processing. It does not require any reporting of information about payors or about individual transactions. Nor does it require any online merchant to report anything except insofar as such an entity might also provide payment clearing services. Payees who receive less than $10,000 in any year and participate in fewer than 200 transactions are excluded from mandatory reporting.

Anyone who has worked as an independent contractor, or has operated a business, is probably familiar with Form 1099. Any business who hires another business to provide services for an amount greater than a certain threshold (which used to be $400 but I believe has gone up in recent years) has to file a Form 1099 with the IRS attesting to the gross amount paid to that other business for those services. The purpose of this provision is to make it harder for self-employed individuals to conceal revenue from taxation. What Chris Dodd is proposing is the same thing, for professional eBay sellers. And he's doing it to raise the money required to pay for the mortgage bailout he's proposing. Since this represents taxes that are legally due and payable but not being paid because the people who are supposed to be paying them are not reporting the income, I consider this perfectly fair and reasonable.

And that's why the eBay sellers are up in arms over this. This doesn't invade anybody's privacy. What it does do is make it far harder to collect money via PayPal or other alternative payment handling methods and have that income be undocumented. Right now, if you're selling stuff on eBay to the tune of $25,000 a year, it's entirely possible that you can conceal most or all of that from the IRS because it's undocumented. Dodd's proposal documents it: PayPal will be required, at the end of the year, to send a note to the IRS that says "Joe Ebay Shark received, via our service, a total of $25,126 in gross payments". And if you don't file a return that reflects that, the IRS will start sending you increasingly nasty little letters asking for their share of that $25,126.

If all you ever do is buy stuff, you won't ever have to deal with it. If you only sell things once in a while, again, you won't have to deal with it (unless you sell really expensive stuff). The only people this affects are people who make more than $10,000 a year selling stuff on eBay, and a handful of companies like PayPal. And, obviously, the people who need a mortgage bailout, to be paid for by collecting taxes already due and payable on tax-evading eBay sellers.

I gotta hand it to FreedomWorks. They took a perfectly ordinary income-reporting provision, and one that is not even all that invasive, and turned it into a vile invasion of online privacy. Too bad they had to lie to do it. I suppose we can't really blame them; the CRO is estimating that this reporting provision will generate $9.8 billion in government revenue over ten years. That's a lot of unreported income.

Please, call Congress at 1-866-928-3035 and tell them that you support requiring professional eBay sellers to pay income tax.

Oh, and go thank Slashdot for uncritically picking up the story and running with it as if were actually true.