The IRS has successfully prosecuted one of its own -- revenue officer Andrea Fabian Orellana -- for failing to report income she made selling items on eBay. According to Forbes.com Orellana "is liable for $12,428 in back 2004 and 2005 income taxes" as well as for $2,486 in negligence penalties. The article also provides this cautionary reminder:
Beginning in 2011, credit card companies and third-party transaction handlers such as Amazon.com must report to the IRS the gross sales of any U.S. seller doing more than 200 transactions and $20,000 in sales per year. (Congress passed the requirement in 2008 to help pay for the first-time-homebuyer tax credit.)
Just last week, the IRS released a "Cash Audit Technique Guide" suggesting that auditors look beyond illegal drug sales to tax the underground economy. According to the guide: "Areas of potential abuse include the house with the perpetual yard sales, eBay sellers, craft fairs, selling homemade tamales, doing car repairs in the backyard, collecting cans and bottles for recycling, selling goods at pawn shops, day laborers on street corners."
So, if you're selling on eBay and your highest bidder is iLUVtheIRS, watchout.