By Kevin Samson
The IRS continues to be in the news cycle due to a continuous back and forth about how much power it will continue to have, and whether or not it will be weaponized even further against the average American. Even with the current delay of the onerous attempt to hit gig workers with a $600 threshold for reporting, they forge ahead, empowered by an $80 billion investment under the Inflation Reduction Act and some new code changes.
First it was reported that a new IRS alert went out to explain that there would be a new question to answer regarding “digital assets” and how to stay in compliance. Failure to answer accurately could spark and audit and attendant consequences.
“All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets,” the agency cautioned.
It is a legal requirement to accurately report all income, including income from digital assets, on federal income tax returns. Failure to do so could result in non-compliance with tax laws and possible penalties. – Source: The Epoch Times
Now there is a new target for tax oversight: your friendly fantasy sports league. Clearly not intending to wage war against billionaire tax cheats as advertised, this latest code change is set to “cause a sizable increase in audits and taxes on Americans, especially those using transaction services like Venmo and PayPal for fantasy sports, according to tax experts,” reports Fox News.
One tax expert, Bruce Willey, even likened it to being put in the path of an oncoming truck.
“Most Americans are about to get run over, and they have no idea. If they’re not prepared for it, things could get pretty ugly for people,” he said.
The same previously mentioned mechanism for gig workers is finding its way into fantasy sports for those who use online apps as their payment systems. Additional scenarios and specifics were described by BakerHostetler Nationwide Tax Chair Jeff Paravano. As one should quickly see, it’s vague, extremely burdensome on all parties involved, and will likely do nothing except drive up the numbers of audits and extortion that will result.
“Somebody that engages in a lot of fantasy sports. You can only deduct the losses to the extent of your winnings. So, you better be keeping receipts of your losses. That’s going to be a deduction for you on the money you received,” Paravano, a former Senior Adviser to the Assistant Treasury Secretary for Tax Policy, said.
Paravano said the changes were also likely to impact fantasy sports leagues with money wagers conducted by coworkers, friends and family members. He suggested the 1099 would be doled out for the gross amount and would not include the wager. Tax penalties are likely for the persons that held onto the money, who will receive a 1099 alongside the third-party payer used by the group.
“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,” he said.
Not a player? It doesn’t stop with fantasy sports; it’s a more sweeping move toward generating more Form 1099 requirements. Emphasis added:
Both tax experts suggested that the code changes could result in more audits and taxes for Americans or, at the very least, an increase in correspondence with the IRS…
National Taxpayer Advocate Erin Collins projected last week that the number of 1099s being filed would double once the code change goes into effect…
For example, sending money to a kid in college can be considered a gift under the current U.S. tax code unless it exceeds $17,000. However, the student will still receive a 1099 and may be asked to provide proof of the gift to avoid paying taxes on the amounts recieved.
“The horror is that a parent who pays rent to a college student every month, guess what, their child may get a 1099,” Paravano said.
The code changes will also cover transactions on Facebook marketplace, lending money to a friend, reimbursing a roommate for rent, paying a colleague for going out to dinner, repaying a bar tab, a mother sending a child gas money and raising funds from parents to purchase a coach a gift.
Just what the average American is looking for: more contact with the IRS … because they are so well known for their reasoned approach, pleasant discussions and equitable conclusions.
So, beware overburdened tax cattle, there is an oncoming truck — but instead of “Mack” on the grill, it says IRS.