The IRS is not going through your mail. (HR 3221)

One thing I really hate is when people get their facts wrong. In this case, it’s facts about what started it’s life as House Resolution 3221. In Subtitle B of the bill, we have section 3091 that caused a lot of hubbub on sites like Digg and Campaign for Liberty. The problem with their facts is that why claimed the bill ordered all credit and debit card transactions will be reported to the IRS, and that’s exactly what’s happening, and that’s not in context either.

The section’s text is as follows:

(a) In General- Subpart B of part III of subchapter A of chapter 61, as amended by subsection (b), is amended by inserting after section 6045A the following new section: SEC. 6045B is amended by adding at the end the following new section:

So, the section everyone is getting their shorts in a wad is part of a larger picture. Who bothered to find out what the larger picture was? No one. So what’s the larger picture

• TITLE 26 – Internal Revenue Code
  • Subtitle F – Procedure and Administration
    • CHAPTER 61 – Information and Returns
      • Subchapter A – Returns and Records
        • PART III – Information Returns
          • Subpart B – Information Concerning Transactions With Other Persons
            • § 6050W – Returns relating to payments made in settlement of payment card and third party network transactions.

So the law isn’t just, “Tell the IRS everything everyone buys.” It’s an amendment to the IRS code dealing with transactions between individuals. This is NOT dealing with transactions between individuals and legal entities such as companies, corporations, government agencies, etc, but only between regular people.

Further detail is revealed by reading the text of the amendment in context:

(a) In General- 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 payment transactions are made, and
(2) the gross amount of the reportable payment transactions with respect to each such participating payee.

The most important words there in my opinion are “to whom one or more payments in settlement of reportable payment transactions are made.” This is not your purchases being reported, this is payments to you being reported. They don’t care who did the buying, they want to know who did the selling, and for how much.

This is the IRS catching up with people who sell things on eBay and get paid via Paypal, Moneybookers, and other electronic payment methods, and who never report those payments to the IRS. There is no efficient and effective manner to get people to report what they make at a garage sale, and most people never port that. They put their junk out on the lawn and get paid in cash. But online, the records already exist in machine readable form, and it’s not that hard for the IRS to match that with tax returns, which more and more people are filing electronically, in machine readable formats.

This essentially does away with the $600 limit formerly in effect. Unless you got more than $600 from Paypal or other “third party networks”, they didn’t have to bother telling the IRS unless more than $600 went through in a calendar year. If you sell a golf club on eBay and get paid via Paypal, that’ll be reported. If you’re getting donations for your website, that’ll be reported. If you’re some dude in Iowa who pretends to be a 14 year old girl to get losers to send you money online, that’ll be reported.

Again, this isn’t the IRS going though your Visa card bills. This is the IRS making sure you reported the income from the sale of your aunt’s collectors edition Barbie on eBay. You can take off your tin foil hats now. It doesn’t even take effect until January 1, 2011. Plenty of time to call your congress-critter and complain.

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