You'd be wrong on all counts here. It's almost uncanny.

With perhaps a few exceptions, I don't think any one auction, or the habits of any one bidder, are enough to draw conclusions. But when one sees patterns, auction after auction, month after month, year after year, bidder after bidder, one does get strongly suspicious. And Jesse, no worries.

I agree that tax authorities would certainly use paypal records to verify tax compliance, but not ebay records. I have been selling on ebay for years, and NEVER have the "sales" numbers provided by ebay ever been remotely close to the actual numbers derived from my paypal tax forms that have been forwarded to my accountant each year. Please explain EXACTLY how ebay can confirm IF a transaction was actually completed or not? Ebay can't, bottom line.

As an example, I had a lower priced item returned back to me recently. Ebay, due to some system glitch, would not allow me to request a FVF credit or provide a refund through their system because the buyer opened and then closed a return request before the item arrived back. I simply wrote off the very small FVF credit and refunded the buyer through paypal. This item is still marked as paid with ebay, however, I refunded the buyer. I clearly would not rely on ebay in this situation if I was faced with a tax auditor as the sale would still be showing as "completed". I would however, show the auditor my PP refund(which is linked to the original transaction).

What matters to auditors in regards to an ebay business is the paper trail that is created in either paypal or a bank account that shows an actual payment received thus creating a taxable "transaction", as I am pretty sure that no state is not going to impose a tax on a "commitment to buy" made through ebay that may not ever be paid for. I also highly doubt that an auditor is going to waste their time pouring over ebay records of commitments to buy, but instead they will review actual payment transactions made through paypal and deposits into bank accounts.

It's reconciliation. Paypal and your bank accounts can have multiple types of payments going into those accounts. Not all of them may be related to your business. It could be friends paying you for their share of a dinner expense. How do you determine which payments into your accounts are personal and which are for your business? Or you may receive your regular paycheck deposited into your bank account. How do you handle this? You reconcile your paypal and bank account transactions with your ebay transactions. In addition, your ebay fees are still a business expense when you are working on your federal and state taxes, so you still need to loop back to your ebay documentation if you are audited for income tax purposes. Your monthly account statement from ebay with your fees also has your sales figures so you can use this in conjunction with your paypal statements.

Wow, I would think it foolish if an ebay seller(who receives a 1099 from PP) put themselves in a position of not utilizing both a separate bank account and paypal account that is only used for their ebay selling and is not used for personal type transactions.....I certainly use separate accounts. This makes it VERY easy to differentiate any ebay business transactions from any personal income transactions.

As far as outgoing payments, I use one credit card for all expenses, such as inventory, supplies or paying bills like my ebay (fees) bill. Since I keep all outgoing payments for ebay only expenses on one account, it is quite easy to forward these expenses at year end to my accountant for accurate tax preparation purposes.