IRS to crack down on income earned by third-party sellers on eBay, Amazon and other sites

NOVATO, Calif. (KGO) -- If you're among the nearly 4 million people who sell items on eBay, Amazon or Etsy, the IRS is watching you. The "honor system" is soon going the way of the dinosaur at the IRS. Beginning this year, the tax agency will no longer allow third-party sellers to self-report their income.

For years, sellers could hawk their merchandise on third-party sites and stay largely under the radar of the IRS.

As long as you did under $20,000 in sales, you were allowed to self-report your income.

No more, says Jennifer Chiou, a special agent with the criminal investigations unit of the IRS.

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California taxpayers got some great news today from the IRS: the federal government will not tax those Middle Class Tax Refunds after all.

"So moving forward, more and more taxpayers are actually going to be receiving form 1099s in the mail, which are due by these companies by Jan. 31," Chiou said.

That means for sure the IRS will be collecting taxes from the revenue generated.

"These companies are required to file a 1099 on these individuals if their transactions are exceeding $600," she said.

Failing to report can be costly.

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The IRS accused Terry Fischer of Novato of not disclosing nearly $40,000 in sales on Amazon in 2020.

The agency sent him a demand notice for $14,000 in back taxes and penalties.

"I was floored. Absolutely floored," he said.

Terry says he's never sold anything on Amazon.

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Californians who received debit cards with the funds already drained by scammers are waiting to see if they have to pay taxes on the missing money.

"I didn't do it. They say I did. and I'm stuck with the process of proving to the IRS that I'd never got this income," Fischer said.

Fischer contacted both Amazon and the IRS.

Amazon referred him back to the feds.

IRS responded with another letter.

"It essentially said the same thing, which you still owe and here are attached are a couple of payment vouchers," he said.

Taxes 2023: 7 On Your Side, experts answer viewer questions during live Tax Chat

Frustrated, he contacted 7 On Your Side. We reached out to both Amazon and the IRS.

Amazon deflected all inquiries back to the tax agency, which advised him to file a report for identity theft.

"We will be making sure to be working with the civil side to make sure there's no other potential fraud or data breaches," Chiou said.

Fischer says he's been told the investigation could take a year and that he does not need to do anything further.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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