"The Internal Revenue Service claimed Orellana hadn't reported more than $41,000 of income from about 1,800 eBay sales of designer clothes, shoes and other items during 2004 and 2005 and said she owed nearly $15,000 in taxes and penalties."
The Tax Court wasn't sympathetic to Orellana's case. Perhaps because she's an IRS employee
I found this interesting:
“As online commerce grows, it is drawing increased attention from tax collectors. Beginning next year, a new law "requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS," according to an IRS summary. For their 2011 tax returns, "taxpayers who annually sell more than $20,000 worth of goods and have more than 200 electronic transactions" will receive a new IRS form, known as 1099-K, reporting the proceeds, said a spokesman for H&R Block, the nation's largest tax preparation company.”
Imagine getting a 1099-K with no back up on your expenses. That would be a major bummer. This won't impact most of us because "income from auctions that resemble a garage or yard sale "generally" isn't required to be reported".
No mystery why this is happening. Uncle Sam needs the money and raising taxes is a political minefield. So enforcement is stepped up.
Here's a link to the IRS site: Tax Tips for Online Auction Sellers