"Starting Jan. 1, the IRS said, if a person accrues more than $600 annually in commercial payments on an app like Venmo, then Venmo “must file and furnish a Form 1099-K” for them — reporting on all the commercial income they collected through the app.
"The tax-reporting change only applies to charges for commercial goods or services, not personal charges to friends and family, like splitting a dinner bill."
I don't know if you can even call it cynicism anymore. You just understand the news media business model. Outrageous headline -> more clicks -> more ad revenue. There would simply be less revenue if your friends only had to read one article to get the full picture.
Somehow people have become convinced that reading a stream of half-sentence headlines is the same thing as being informed about current events.
When you go to pay someone, there's a pretty big box on the screen that says "Are you paying for goods or services? Protect your purchase here" with a little toggle button, and an explanation that the seller will pay a fee in return for you being able to get a refund.
Even if you mark it as such in-app; as a business you still have a legal duty to correctly report the income your business made.
Not doing so is already illegal. This just helps the IRS catch this type of fruad easier.
There's no extra taxes or anything - the $600 or more is taxed when reported correctly (as it was before this change, and how amounts under $600 are taxed as well - business income).
Let's go back to the stone age--the 1980s.
IRS to my mother: You didn't report your income from XXXX on your tax return.
Mother to IRS: I've never even heard of XXXX let alone worked for them. I'm retired.
IRS to mother: If you believe the 1099 is wrong talk to the company to get them to fix it.
Mother to IRS: I have been unable to even locate XXXX, please provide me with contact info.
IRS to mother: We are not allowed to give out such information.
I was off at college at that point and don't know how the situation was finally resolved.
When I got a bad 1099 my former employer even sent out a letter explaining the problem (a bogus entry had made it onto all of our 1099s) and how to dispute it with the IRS but in that case they weren't going to be contesting it--the company had already gone under. I'm pretty sure my mother's case was an illegal with a forged SS card who used my mother's information--the company would contest a dispute over a 1099 because by their records it was correct.
Respond immediately if you are notified of an issue. If you are actively working to resolve the issue that will help avoid getting in a situation where wages are garnished or liens issued.
Do everything in writing, sent by registered postal mail. Nothing they tell you over the phone is official.
Keep copies of everything related to the issue forever.
The optimal strategy is to avoid interaction/scrutiny whenever possible because every interaction adds a non-zero chance that someone with a quota/chip on their shoulder/bad day is about to ruin you.
For now. Once established it will be trivially easy to make this apply to all payments.
This is the government adding reporting requirements for transactions that are already taxable. It's just covering a gap where transactions weren't being reported.
Realistically, a few years from now Janet Yellen will testify before congress that people are laundering money by flagging transactions as personal rather than commercial and that the Treasury has the authority to require Venmo, PayPal, and Zelle to report all transactions in order to go after tax evaders and people not paying their fair share. To calm any outrage, maybe they'll raise the threshold to $1,000 as a conciliatory measure.
My point was the thing stopping Venmo from reporting on your personal transactions is not technical. As soon as the government tells them they need to report, they will comply.
Your second point is possible, but I don't see how this move really gets us closer to that, other than providing data that could be used to make the argument.
How is this different than the transition to requiring online transactions to charge sales tax?
The biggest difference is that we are dealing with a federal entity. When it comes to state sales taxes, that payment is handled by the merchant and I personally don't need to file a return with the City/State/County documenting my transactions and sending a payment or asking for a refund. The businesses themselves need to do this, and that is not unreasonable for a business.
The other difference is that the IRS' system of voluntary compliance is essentially a reconciliation of our own record book and the records that have been submitted to them. They usually match because the average person just pays income tax and that is handled by W-2's and employer withholding. When Venmo, Paypal, and Zelle report that you've done over $600 in transactions, they now have cause to ask you if you should have been paying any capital gains on those transactions. That also requires bookkeeping that you have probably never kept track of. As you probably never bothered to save the receipt on that couch you bought 10 years ago and just sold.
Here is one other scenario, let's say I loan a friend $600 through Venmo. The IRS will only know the amount of the transaction, not the context. If I get audited and tell them it was a loan with no contract, will the IRS accept that as proof it was a temporary loan and not a gift? Will they suspect I actually bought drugs? And so on. While the IRS has a record of all transactions, they will want to know what kind of transactions were occurring and will want to know why the numbers in your 1040 don't match what they are expecting from you.
This is just to get their foot in the door. Once it's there, it's much easier to expand the surveillance activity.
Unpopular opinion, but I'm OK with eliminating this loophole.
I went to a record shop a couple of weeks ago and when I went to pay, the guy didn't take Apple Pay. Or any kind of credit card. All he took was Venmo and Facebook. Fortunately, I had cash. But if you can't even shell out $5 for a Square reader to take credit cards, you're not a business — you're a hobby.
And yes, I have owned small businesses before. Three times. Each time, I took credit cards as payment. It's known as "cost of doing business." No different than paying to put up a sign, or renting a storefront.
If you're doing a relatively low volume you might get away with it, but you are committing a crime.
However, it is definitely against the terms of use and will get their accounts suspended. As PayPal has shown, they might also confiscate any money left in the accounts.