Here comes the IRS
By Declan McCullagh and Anne Broache
Staff Writer, CNET News.com
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.
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