The Tax Court yesterday held that an IRS agent was liable for taxes (and penalties) on her unreported income from thousands of eBay sales. Orellana v. Commissioner, T.C. Summ. Op. 2010-51 (Apr. 20, 2010):
Petitioner has been employed by the IRS since 2001. During the years at issue and at the time of trial petitioner was employed as a revenue officer. …
Petitioner has used eBay since 2000. Between 2000 and 2005 petitioner was involved in over 7,000 eBay transactions. … [The IRS] determined that petitioner had unreported income of $15,320.67 in 2004 and $21,062 in 2005. …
Petitioner argues that she was just taking things in her home and her garage and selling them online; she characterized it as an "on-line garage sale". Petitioner explained that she liked to shop for and buy designer clothes, some of which "were sitting in her closet". She testified that while the clothes were "used most of them; some are new," so she "would put them on eBay". She might sell a $350 pair of shoes for $50 but that was better than having them sitting in her closet "wasting space", she testified.
Petitioner testified that she did not understand why respondent so persistently asked for proof of her costs and expenses. She testified that she purchased personal items and never kept a receipt. "That would be ridiculous, unheard of. Unless there was some really bizarre reason why I kept a receipt, there were no receipts", according to petitioner. To address respondent's claim that she was operating a business, petitioner said she put together two charts, based on her bank statements and PayPal records, showing her "business" expenses. "I didn't have receipts. I sold wedding gifts." "I had gift cards. I said well, I didn't pay anything of [sic] these gift cards from my wedding, so I guess I just take all of that as a loss. They said no. The basis is the gift card."
On the other hand, petitioner admitted that she "occasionally" purchased items for sale in the ordinary course of her eBay sales activity that would still "have tags on them". When she was reminded that most of the items she sold were "advertised" as new, petitioner responded: "I always advertise as new only because you can get a better price for that." And she added, "So basically when you're asking these questions about why things are new, I document them as new if it appears new. Is that wrong?" Petitioner explained that she sold clothing and shoes of various sizes because she contracted plantar fasciitis and was unable to keep up her exercise routine. Lack of exercise caused her dress size to increase, according to petitioner, and the use of orthotics caused her shoe size to increase. …
Petitioner has not produced any coherent evidence from which the Court can determine the bases for the hundreds of items she sold in 2004 and 2005 or the expenses she may have paid in the pursuit of her eBay sales activity beyond those respondent already allowed. …
Petitioner's attitude toward the preparation of her tax returns appeared to be cavalier. During his examination of petitioner, respondent's counsel asked her if she noticed that line 21 of her income tax returns provides for reporting "other income" and refers the taxpayer to page 29 of the instruction booklet. Petitioner testified that she "had prepared 1040s since she was 16" and that she would "never look at the instructions."
Petitioner is a revenue officer with the IRS. With this background, she has a wider range of knowledge of tax matters than do members of the general public. Petitioner is, or certainly should be, familiar with the recordkeeping requirements of § 6001, and she had access to a wide range of tax resources relating to the reporting of income and deductions. The Court might not expect for a taxpayer to keep records for a few small items sold on eBay. In view, however, of the large number of transactions in 2004 and 2005 in which petitioner engaged, she should have realized that her activity might be subject to question. Accordingly, respondent's determination is sustained.
20 responses to “Tax Court: IRS Agent Liable for Taxes (and Penalties) on Unreported Income From Thousands of eBay Sales”
You’re breaking my heart. How about getting the IRS employees withholding up to date? What are they like 250 million in the red? What’s good for the goose is good for the gander.
This is a parody, yes? Oh, please, tell me it’s just a joke….
what a joke…..did she not ALREADY pay taxes on all of those items she bought, via sales tax or income tax?
taxation up the but…
stealing, even by any other name, such as taxing, IS STILL STEALING.
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
IRS Agent: you mean my eBay earnings are taxable?
One of the hazards of the online economy is the way it can enable employees to surreptitiously compete with their…
So claim depreciation!
It is hard to have sympathy for an IRS Revenue Officer.
But… this seems wrong. Selling items from your house on eBay isn’t “income”. How the hell did the things get into the house? Theft, arrest her for that. 1000’s of gifts? No way. She bought them and used ebay to clear clutter. Big deal.
I’m glad to see someone within the beast suffering, but I’d imagine that thousands of others get treated this shabbily with no publicity because they are just normal folks being shafted.
I enjoy this blog, but what it reveals regularly about our tax system can be hard to stomach.
I imagine she is also out of a job. The IRS terminates employees who don’t pay their taxes.
Tim Geithner was unavailable for comment….
Sorry, dippitydoo, you might try reading the case. Your sympathies might change. While the taxpayer argued that she was only selling personal items at less than her basis, she also admitted to buying some items specifically to re-sell them at a profit. She did not keep any records, and even walked out of a deposition in which the revenue agent was trying to determine which ebay and PayPal transactions might be deductible business expenses. She grossed over $30,000 a year from eBay (including some expenses that were allowed) but denied that she ran a business and denied responsibility for recordkeeping. Plus, the taxpayer was also dunned for filing as single when she was in fact separated from her husband and required to file as married filing separately. So while I understand the basis point that if she had kept proper records of her basis and expenses, she would have had a much smaller tax bill, I’m not inclined to storm the Bastille over this case.
The real question is why are we paying IRS employees enough to buy $350 shoes? If they are going to steal from everyone else they should at least have enough decency to be barely scraping by.
Given the number of middle class households that make a few bucks by selling on eBay, the more the government money grubs in this aspect of our personal lives, the more people who will be receptive to the repeal of the 16th Amendment.
Taxes on incomes must destroy financial privacy.
In France, boot or garage sales are very strictly controlled, and you are allowed to participate in only 2 per year. Before taking part, there are stacks of formalities such as copies of ID documents, photo of your car registration number and so on. The local Gendarmerie are given lists of participants and pay a visit to all sales, checking their lists of stolen property to make sure they are not being disposed of at the boot/garage sales. OK, there is no tax implication but at only 2 sales per year, you are not going to get rich, are you??!!
Sounds as if she might well have gotten off lightly or entirely if she hadn’t been such a ditz. If she had been able to supply at least a modicum of records, or if she had declared even a small portion of her gains, I’m sure the outcome would have been quite different.
Her defense for tax evasion (not paying taxes on her profit from buying items and then selling them) is that she was committing fraud (falsely labeling personal items as “new”)? Jail.
Her claim that she had $20,000 worth of extra stuff lying around her house every year? Jail.
Jail, jail, jail.
… and these are the folks who enforce the law! Tone at the top: Geithner really set it, didn’t he?
No sympathy here for IRS agents, but selling her wedding presents is a business? Even cynical me doesn’t buy that.
Reading between the lines about her cavalier attitude, my guess is the IRS employee rubbed a boss there the wrong way. Does anyone here know another reason they would look into her other income sources? My understanding is Ebay has never reported 1099 income, so this woman had to be placed on the IRS radar manually.
And they wonder why the Tea party exists.