Paul L. Caron

Friday, January 13, 2023

The IRS’s Christmas Gift To Airbnb And PayPal Is A Loss For Law-Abiding Taxpayers

Following up on my previous post, IRS Delays Implementation Of $600 Reporting Threshold For Third-Party Payment Platforms Like Etsy, Venmo:  Daniel Hemel (NYU; Google Scholar) & Steven M. Rosenthal (Tax Policy Center), The IRS’s Christmas Gift to Airbnb and PayPal Is a Loss for Law-Abiding Taxpayers:

IRS Logo 2Third-party payment platforms such as Airbnb, eBay, and PayPal found a surprise gift from the Biden Administration in their Christmas stockings last month—one that likely will cost the federal government more than $1 billion this tax season. And beyond the short-term budgetary impact, it sets a terrible precedent for the future of tax enforcement.

Since 2011, third party platforms have been required to file a simple half-page tax form, Form 1099-K, when they process payments to sellers and service providers, such as Airbnb hosts or eBay merchants. Before tax year 2022, platforms had to report only for users whom they paid more than $20,000, and only then if those users conducted more than 200 transactions annually.

To crack down on tax evasion, Congress in 2021 lowered the bar to $600 for tax year 2022 and did away with the transaction-count minimum. The first forms were due by the end of this month.

But on December 23, the IRS—without citing any legal authority—announced it won’t enforce the $600 reporting threshold for another year.

The announcement represents a victory for the payment platforms that banded together to lobby Congress to roll back the $600 rule. Although they failed to convince Congress to change the law, they still got a one-year win for themselves and for individuals who do not report their platform earnings to the IRS.

The rest of us ought to be outraged.

Not only will the IRS’s decision lead to more evasion, but the agency’s failure to invoke any statutory authority for its decision raises concerns about its commitment to following the law.

President Biden deserves praise for his efforts to bolster tax compliance, especially by securing an additional $80 billion over the next decade for the beleaguered IRS. But delaying the $600 rule is an unfortunate blemish on his administration’s tax record. ...

It’s true that Treasury and the IRS have pushed back the effective dates of new laws before—for example, delaying the Affordable Care Act employer mandate from 2014 to 2015 when the agencies concluded that on-time implementation would be impractical after years of court battles over the statute. But there’s a meaningful difference between a good-faith effort to meet an ambitious statutory timeline and a last-minute decision to disregard a law’s effective date—especially when, as here, the IRS easily could have complied with Congress’s command but simply chose not to.

It’s also true that the Form 1099-K statute gives Treasury broad authority to issue regulations that are “necessary or appropriate” to carry out the reporting requirement. But similar language appears in dozens of other tax code provisions. Does the Biden Administration believe it also has the authority to postpone or suspend those provisions too?

Most concerning is the possibility that a future administration will cite the Biden Administration’s delay as precedent for suspending large swaths of the tax code. At the very least, Treasury should articulate a limiting principle that explains last month’s action without opening the door to much more serious nonenforcement down the road.

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