1099K and E-Commerce Discover: Not a Slam Dunk...eBay – most popular online auction site (transaction interlinked with PayPal) Craigslist – free classifieds site (cash-based transaction

FTA Technology 2014

1099K and E-commerce Discovery : Not a Slam

Dunk!

Justin Nieman – MN DOR Allen Atamer – LTAS

Technologies

Minnesota Revenue LTAS Technologies Inc. FTA Technology 2014

What is 1099K?

  IRS Form 1099-K is an informational return that came into existence as part of the 2008 Housing Assistance Tax Act. The purpose of the form is to try to ensure that all online retailers are reporting sales for tax purposes. It requires credit card companies and third-party processors to report the payment transactions they process on behalf of retailers

  First set delivered Apr/May 2013 for tax year 2011


When is a 1099K issued?  Payment Card Transactions

  Debit Cards   Credit Cards

 Third Party Payment Networks   PayPal   Amazon   Etsy

 Thresholds of at least 200 transactions and $20,000 in gross payments


What is e-commerce?

  Products and/or services   Transacted through the Internet, and   Solicited through the Internet

  Today focussed on publicly available (open) sources

  Today’s talk focussed on   eBay – most popular online auction site (transaction

interlinked with PayPal)   Craigslist – free classifieds site (cash-based

transaction settlement)


How to obtain open source data?

 Manually browsing webpages   Screenshots (Faststone – for FB)   RSS feeds

 Automated webscraping   COTS scrapers work for simple websites   Custom scrapers website-specific

•  Beware of heavy Javascript use (eg. Facebook)


Slam Dunk?


Myth #1: 1099K covers all e-commerce activity

 Not a Direct Match for Underreporting   Tips   Fees   Sales Tax   Shipping   Returns & Adjustments


Myth #2: Discovery is all about non-filers

 65% non-filer taxes owing  35% under-reporter taxes owing


Myth #3: An Online Seller is Anonymous

 Demographic Information   Ebay My World   Ebay Store   Lookup Information on Google on non-eBay

sites  Revenue Estimates

  Sales Feedback   Using open source data in conjunction with

1099-K data


Myth #4: Open Source Info is Inaccurate

 75-80% accuracy of the business name  75-80% accuracy of the business address  80-90% of businesses HQed in MN  +/- revenue estimates from actual  Sweet spot

  $100k - $250k / year in gross sales   Auto parts, computer equipment


Minnesota Analysis: Open Source vs. 1099K

 Background:   Reviewed 100 open source leads that we

associate to a business in our tax system.  Three Distinct Groups

  Entity 1099-K Match   Owner/Officer 1099-K Match   No Associated 1099-K


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Minnesota Analysis Open Source vs. 1099-K

Owner/Officer 1099-K 33

No 1099K 31

Entity 1099K 36


Myth #5: open source data is inadmissible if challenged

 Terms of Use forbidding   ‘repurposing’ of data   Automated ‘bots’ to download content

 American Airlines v Farechase  Craigslist v 3Taps  No case law for tax department   In practice: no contests yet


Myth #6: Protest cost not feasible

 Least effort: one postage stamp  Most effort: Auditor time  Most fall somewhere in the middle


Pennsylvania open source - 1099K overlap

 EBay   12 out of 30 leads (40%) had Entity-level

1099K overlap via FEIN   24 leads w/o FEIN (using name/zip match)   Overall 12/54 (22%) overlap

 Craigslist   5 out of 104 leads with FEIN (5%)


Case Study: PA Revenue

 eBay and Craigslist leads  PA runs cross-check tool in-house on STx

Licensees  CL: 9% (27/302) sellers have STx license  EBay: 27% (37/136) sellers have STx

license  273 Discovery referrals, 2 Audit referrals,

1 Act 46 triggered from 440 potential cases


Conclusions

 33-40% of eBay open source leads hard match on 1099K data

 Only 5% of Craigslist open source leads hard match on 1099K data

 Both open source data and 1099K in conjunction will yield better results


Multiple data sources: A slam dunk


Thank you

 Allen Atamer   [email protected]   1-877-352-3277 x 1

 Justin Nieman   [email protected]   651-556-6889

Documents

1099K and E-Commerce Discover: Not a Slam Dunk...eBay – most popular online auction site (transaction interlinked with PayPal) Craigslist – free classifieds site (cash-based transaction