Don't Make the Tax Gap into a Privacy Protection Gap

The notion that the IRS could soon have too much information on consumer transactions is gaining traction. An article by Declan McCullagh and Anne Broache (Selling stuff online? Here comes the IRS) includes some good points about why we don't want the IRS to morph into an Information Reporting System.

In their article, McCullagh and Broache describe how Nina Olson, the National Taxpayer Advocate, told Congress that:

[Congress] should require information reporting on gross proceeds from sales conducted on Internet auction sites. "One recent study found that 700,000 Americans reported that eBay sales constitute their primary or secondary source of income. The IRS must have the tools needed to address underreporting of this income," she said.

In the case of e-commerce, the tools that Olson refers to is information. And the burden of collecting and reporting such information falls onto e-commerce marketplace websites and their users. But the real burden is harder to quantify, and is even more important.

The mass collection of information by private companies for governments is an unwieldy and heavy burden on privacy.

Readers of Matt Stinchcomb's statement in the article may miss this broader privacy implication when he says "Our goal as a company is to allow people to make a living making things, and this is just another impediment to that."

Not entirely. Those making a living selling stuff on the 'Net are already paying their taxes (or better be!). As a practical matter, this is a hardship to those that don't make a living selling items on e-commerce marketplaces, and will now be forced to compute their profits and losses each year using IRS Schedule C.

Scott Weber's quote drives home the privacy concern of entrusting companies with personal information when he says that

"I'm pretty much a one-horse operation here," Weber said. "I do everything myself. I'd have to hire a whole bunch of people. I'd have to hire someone full-time to do this. You'd need to track people all over the country, and you'd have to get their SSNs."

Again, this is a hardship on companies. But it will also force sellers to provide more information to companies. That's where the real hardship lies, because it is the information of users of e-commerce marketplaces that the IRS wants.

When it comes to privacy and how e-commerce marketplaces work, the IRS just doesn't get it. The article quotes Paul Heller of the Information Reporting Program Advisory Committee, who said:

"Since eBay has all of the information, knows that a transaction has been consummated, knows who the seller is, and the seller is registered, then it would be appropriate for them to report the final transaction. They can track by taxpayer ID number how many transactions the seller does. Since they do have all that information, it would be appropriate for them to file a 1099."

Heller seriously underplays the privacy invasion. These sites DO NOT already have all the info they need, in terms of either Taxpayer IDs or whether a sale was actually consummated. E-commerce marketplaces also don't ask for social security numbers. Furthermore, these sites may know of a winning bid or the placement of a sale, but these sites do not know if the sale was actually consummated between the buyer and seller.

The IRS has always coveted more data on the commercial activities of American taxpayers. It’s just always been too big a burden to require companies to collect, accumulate, collate, and transmit offline data that is widely distributed in multiple formats. But the Internet has reduced these burdens to where the IRS thinks that they can now ask for it. There’s no further justification offered for this incredibly broad collection of e-commerce data and invasion of privacy.

The mentality of the IRS is clear – they are convinced that e-commerce platforms are sitting on a virtual gold mine of data, and they want to get their hands on it.

If the IRS can get even more detailed data on more kinds of online transactions, don’t expect the federal government to start showing any discipline or respect for your privacy.

Comments

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With time businesses are facing budget deficit as revenues are down , its same as before when ever we face economic problems people stop paying taxes .