The Center for Democracy and Technology (CDT) is sounding an early warning on a proposal in the president's 2008 budget that would require Internet businesses such as Ebay and Amazon.com to collect personal data on their customers and share it with the Internal Revenue Service (IRS).
The move is part of an effort by the U.S. Treasury Department to track down unreported small business income generated by the sale of personal property on such sites. Under the proposal, online "brokers" would be required to file income statements for all customers who use their sites to conduct 100 or more separate transactions that generate US$5,000 or more per year.
Among the information the brokers would be required to collect would be customers names, addresses, and tax payer identification numbers or Social Security numbers. The proposal would be effective for sales of property on or after Jan 1, 2008.
There are so many things wrong with this proposal it's hard to know where to begin. I'll start with the impact this would have on the Internet businesses which would have to start collecting all this information and report it to the IRS. Security would also be an issue. Millions of social security numbers would have to be collected and stored for who knows how long. (Forever sounds about right.) It would be a record-keeping nightmare for the Internet businesses and a major privacy concern for individuals selling on the Internet. Millions of Americans sell personal property every day through eBay and many of those sales would not be taxable anyway. We only pay tax on any profit we make and most of the time when people are selling personal property they are not making a profit. They are selling the items for less that what they paid. Yet those individuals would still have to provide their social security numbers and the IRS might show up on their doorstep and make them prove they did not make a profit. There would still be a requirement to report the income and show a loss on their tax return, I'm sure. More forms for folks to fill out just because they decided to sell a few things from the garage.
Does anyone really believe the IRS could handle the paper swamp this will cause? Yes, businesses (and individuals) should report income from all sources. But why not have the same rules for online businesses as for brick and mortar businesses? Why should eBay and Amazon have to keep the records? The transaction is between buyer and seller.
"While no lawmaker has yet come out in support of it, the measure could easily find its way into a larger legislative package," the CDT, a Washington D.C.-based think-tank, warned in a statement on its Web site.
The only way to stop this madness for good is to get rid of the IRS, scrap the tax code and replace it with the Fair Tax.