When asked why he robbed banks, Willie Sutton, the notorious 1930s fugitive, famously retorted, “Because that’s where the money is.” Democrats in Congress took this advice and ran with it.
A key priority of President Biden’s agenda has been empowering the Internal Revenue Service (IRS). Befitting his party’s addiction to taxing and spending at enormous levels, he has repeatedly sought to expand the size and reach of the IRS.
Last year a change giving the IRS sweeping new power was enacted by one-party Democrat rule and is set to inflict damage in the coming year unless altered. The so-called American Rescue Plan Act of 2021, which kicked off the inflation-driven cost increases hampering our economy, also included a tax provision targeting regular Americans engaged in the digital economy. Democrats have essentially given the IRS and Big Tech a mandate to scrutinize individuals, small business owners, and just about anyone who uses money transfer apps.
The provision centers on the 1099-K tax form. The form is used to report transactions made on “third-party settlement organizations,” online marketplaces such as PayPal and Venmo that allow for money to change hands. These marketplaces allow people to transfer money online. Prior to the changes made by Democrats, the minimum threshold for reporting money transfers made on third-party settlement organizations was $20,000 on 200 or more transactions.
Now, it is $600 on any number of transactions. It could even be a single $600 transaction during the year. Accordingly, PayPal, Venmo, etc. will be required to tell the IRS about transactions that cumulatively reach $600.
I believe that such a low threshold will lead to millions more people being subject to filing additional paperwork with the IRS.
Venmo payments between roommates to reimburse each other for a cable television bill or a similar expense, while not counted as income, could still raise questions, and trigger a 1099-K form landing in your mailbox.
How will the IRS examine all these electronic payments?
Perhaps with the 87,000 new IRS agents provided for under this year’s preposterously named Inflation Reduction Act? Congressional Democrat-supported changes will result in tens of thousands of IRS inquires to average American taxpayers. That could be you.
By lowering the threshold, Democrats have ensured that far more people will be inadvertently ensnared in the IRS’ net. While claiming they are only targeting wealthy taxpayers, sharply lowering the threshold will mean that in the coming tax season, many individuals, small business owners, independent contractors, and casual buyers and sellers of goods and services online will be receiving a 1099-K form for the first time.
This could even include the swim coach who allows parents to pay for their kids’ swimsuits by reimbursing the coach using Venmo or PayPal. While she would not owe any taxes because she is only a pass-through, she could have additional IRS paperwork to fill out for merely being helpful.
It is easy to see that IRS scrutiny would extend to middle-income individuals, who are likely less able to afford tax lawyers and accountants to deal with IRS demands.
Compounding the problem is the uncertainty about what the new requirement entails and what transactions will be subject to taxation. Individuals who use an app on their phone to simply pay their neighbor for babysitting, purchase an auto part, or buy a Christmas wreath from their local Boy Scout troop, will have a new headache. Small businesses already struggling, will now have their tax season stress compounded by an additional layer of bureaucracy and paperwork when working on tax preparation.
Another concern is “third-party settlement organizations” are required to collect taxpayer information and share it with the IRS.
The Treasury Department’s Inspector General for Tax Administration has identified weaknesses in the IRS’ cybersecurity defenses for protecting taxpayer data. Handing over more of it without shoring up the agency’s protections could lead to disaster.
I have cosponsored a bill, the Stop the Nosy Obsession with Online Payments (SNOOP) Act of 2022, to reverse these harmful tax provisions, and I have also signed a letter to the acting commissioner of the IRS urging it to delay implementation and demanding more information about how the agency will carry out the 1099-K requirements.
One of the new Republican-led House’s priorities will be reining in the IRS. As Americans feel the impact of decades-high inflation and a stifled economy, they should not have to worry about more visits from the tax collector.