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Originally Posted by Smarti5051
Why is the 1099 threshold such a big deal? Regardless of whether the threshold is $10 or $10,000, in an IRS audit, you are going to have to demonstrate you accounted for the income going into your bank/Paypal/investment accounts. And, if you did not include the income on your tax return you could be in a world of hurt. If you could somehow get paid by Ebay in food or untraceable assets, it might be difficult for the IRS to track your income. But when you get the audit notice and the IRS asks to see your bank statements for the past 24 months, all of the eBay managed payment deposits are right there. If these are not reflected in your tax return, you're not going to have a good day.
The ones that should be complaining about the 1099 reporting are the entities now required to send out 1099s. That is an administrative hassle and quite expensive.
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It is such a big deal because it causes so many more people to now be actively looked at for federal income tax purposes. You are correct that the IRS upon audit and review can (and will in some cases) request and review taxpayer bank records. However, that would typically only occur in instances where the IRS had actually selected that particular taxpayer's return for audit. And the audit rate for taxpayer's individual returns, especially for those with lower overall income, are extremely low. Without receiving one of these specific 1099-K forms, if the taxpayer didn't voluntarily report their Ebay sales on their federal tax return, the IRS frankly wouldn't even know (or likely care) that the person was selling things on Ebay.
But with the lowered reporting threshold, the IRS now has to pay more attention to all those returns of people receiving these 1099-K reporting forms. And the people receiving them now have to make sure they report their Ebay sales activity on their federal tax returns, whereas in the past when they didn't receive a 1099-K form they easily got away with reporting nothing. The IRS as a matter of policy effectively matches 100% of all 1099, W-2, and any other similar types of tax reporting forms they receive to the recipient's respective federal tax return, WITHOUT FAIL! So, if you now get one of these 1099-K reporting forms from Ebay sales and don't report it on your tax return, you WILL (not maybe) be contacted by the IRS and subject to their scrutiny and audit. This creates way more work for taxpayers, tax preparers, companies/people issuing these 1099-K forms, and obviously of course, the IRS.
Honestly, most all these Ebay sellers should have been reporting their sales activity on their tax returns all along. But with the lowered 1099-K reporting threshold, that choice is no longer optional once their gross sales subject to such reporting hit $600 in any given year.