Quote:
Originally Posted by Aquarian Sports Cards
This seems like a misunderstanding of the statutes, at least according to the PAA. Me taking Paypal has nothing to do with my consignors. If I paid THEM in paypal that would be a completely different issue. The IRS has assured the Pennsylvania Auctioneers Association that as long as an auctioneer is not a payment processor (and no writing checks to a consignor does not make one a payment processor) they are not covered by the new guidelines. We have been told that basically auction status has not changed. That being said, consignors, pay your taxes!!!
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Scott,
If you have everyone paying you via Paypal, goods and services, for say a total of $5M for the year, and your company earned and is entitled to a 20% sales commission, that means you actually earned $1M for the year. But the 1099-K you get from Paypal is going to say you actually earned $5M for the year, so the IRS is going to be looking for at least that $5M amount to be reported as gross revenue on your company's tax return. So what do you call the $4M reduction you end up reporting on the company's tax return? It technically isn't a tax deductible expense as it was never truly your company's income to begin with. And what do you tell an IRS agent, if one comes knocking on your door, if they come asking you to prove the $4M you claimed as a deductible expense? You can't just keep consignor's names and info a secret from the IRS.
I already understand how you are technically not required as an auction house to give 1099s to your consignors since your AH didn't pay the consignors for any services. You are just acting as an agent on behalf of your consignors, and collecting and remitting their auction winnings to them, net of your fees/commissions. But if acting as an agent for your consignors means Paypal reports all the 1099-K payments to your auction company, and your auction company then redistributes those payments among your consignors, that means your auction company is acting as a nominee/middleman to all your consignors, which then technically makes your auction company the Payment Settlement Entity (PSE) for your consignors. And PSEs are exactly what Paypal, Zelle, Venmo, and the like are. That basically means your auction company should be taking whatever may be reported to you on a 1099-K form from say Paypal, and then turn around and file nominee 1099-K forms to break down and report the Paypal proceeds that ended up being paid to each consignor every year. That 1099-K nominee form reporting would then act as the documentation and backup support for the $4M deduction I spoke about on your company's tax return.
Ebay works with, or through, Paypal to see that every applicable Seller on Ebay will get the appropriate 1099-K form after the end of the year. Why would something like this apply to Ebay, but technically not to you and your auction house? Accepting payments through these third-party PSEs (Paypal, Zelle, Venmo, etc.) suddenly puts your auction house into a nominee reporting situation when you act as a middleman for your consignors, and redistribute PSE payments to them. This is totally different from requiring AHs to report ALL consignor sales through the AH, it only applies to reporting sales using third-party PSEs to send payments through.
Not sure what other AHs that do accept Paypal, Venmo, Zelle, etc. are doing or going to be doing about this going forward. I can see the tax authorities using the recently amended 1099-K reporting threshold changes to start going after AHs though. Prior to this year (2022) a consignor technically would have had to consign and have sales in excess of $20K AND have sold 200 or more items through an AH, which then got paid via Paypal or some other third-party PSE, before you'd have to send them a 1099-K form. But this year, and going forward, all a consignor needs is one sale of $600 or more, and they technically should be getting a 1099-K from someone. Chances are extremely few, if any, consignors were hitting that 200 transaction threshold in prior years, so no one was getting too concerned about AHs and 1099-K reporting for consignors. That has dramatically changed with the lowered $600 sales reporting threshold, and no minimum number of required sales transactions.
Might be something to really think about and talk over with your own tax accountant before jumping into accepting third-party PSE services for getting paid.