Ebay sellers and others earning with online auctions and ecommerce sights that use third party transaction hosts such as Paypal and Alert pay have anticipated this for years and it is finally becoming a reality. Uncle Sam wants his cut.

Buried deep in the Housing Assistance Act of 2008, enacted with the intent of recovering the Internal Revenue Services lost revenue and supported by the Bush administration, is a new law that will require all third party sales transaction companies to report all members whose sales total over $20,000 annually  and whose annual individual transactions exceed 200. The good news is that it will not go into effect until 2011 giving merchants time to prepare.

Speculation has it that companies such as Paypal would be issuing a revised 1099 form to all that fall into the reporting category. These merchants should have filed a schedule C reporting earned income from business so they can take the deductions allowed for a home based business such as their office, business trips, entertaining and the many other allowable deductions. If your business shows a profit more years than a loss the IRS is more likely to recognize it as a business and not just a hobby where those deductions would not be permitted.

It is surprising and also a little disturbing that the IRS took so many years to invoke such a rule. It has however come at a time, during this bailout administration, that the billions in lost revenue generated by online sales is finally going to be at least partially recovered. Although those who finally have to pay the same taxes as a brick and mortar business would probably disagree it will be a benefit to the current economic conditions by leveling the playing field..