The Internal Revenue Service (IRS) will be investigating any transaction of $600 or more beginning with 2022 tax returns.
The IRS’ “cash grab” will focus on PayPal, Venmo, Etsy, Facebook marketplace, AirBnB and other popular payment services and is predicted to hit taxpayers “like a truck” according to tax attorney and CPA, Bruce Willey, in New York Post reports.
Willey and other tax professionals say fantasy sports is one area ripe for IRS investigations.
“Most Americans are about to get run over, and they have no idea,” says Willey. “If they’re not prepared for it, things could get pretty ugly for people.”
The new powers of the IRS aren’t due to the added 87,000 new agents and $80 billion in additional funding. Instead, they stem from 2021’s American Rescue Act, that lowered the threshold amount for third-party settlement organization (TPSOs) to report to the IRS to 200 transactions and $20,000, to every transaction over $600.
President Joe Biden signed the new change to the code into law in March 2021, which requires TPSOs to send 1099-k forms for The IRS and others if they meet the lower threshold criteria.
While betting on sports is already included in the tax code of the IRS, the new rule will require sports betting applications like DraftKings and FanDuel that use any of those popular systems of payments to comply.
It means that millions of Americans who use payment systems or bet casually on sports — even to pay for ordinary everyday items including a child’s college room and board or splitting a tab at dinner — will be moved into the expanded IRS reporting system.
“It’s this huge fishing net that’s just going to sweep up a vast amount of people in America,” said Willey.
As a result, people should keep records of transactions, even if a casual purchase, as well as every receipt, and if they invest or bet through these payment systems, and monitor losses to offset wins or profits, says former Jeff Paravano, senior tax adviser at the Department of the Treasury and national tax chairman at law firm BakerHostetler.
Experts warn to prepare for more errors
Experts warn the onslaught of additional information the IRS is going to process is likely to result in errors.
Currently, the IRS handles four billion individual pieces of information during each tax season. Under the new reporting law, that amount will double to eight billion annual returns. To process that many pieces of data, the IRS has recently launched a 1099 electronic information return portal.
Nonetheless, instead of smoothing out mistakes, the portal is likely to create further differences between IRS records and individual taxpayers, warn experts.
“The fear is that the 1099 will be sent out for things that are not taxable income, and the IRS doesn’t have the capability to easily figure that out,” says Paravano.
Paravano and Willey firmly believe the government’s aim is to collect an additional $8.1 billion in taxes from lower-and middle-income Americans over the upcoming decade. Democrats and officials with the Biden administration have argued emphatically the bolstered IRS will only impact individuals making $400,000 or more.
“That’s a flat lie,” said Willey. “That’s not accurate. They’re lying to you.”
“Legislators are being disingenuous,” continued Willey. “This is one of those things where they say one thing while they are taking your campaign donation and then they turn around and go to Washington and do something completely different.”
The expanded government policies and IRS are bent on a “stealth tax increase,” said Willey. Willey said Americans should brace themselves for higher taxes and additional audits.