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GrnEyedDvl's Desk

Why I cannot stand the IRS

Rating: 5 votes, 4.20 average.
I do not usually vent about problems like this on TWC, but today I got a letter from the IRS regarding tax year 2013 and how it relates to TWC. They are now claiming I owe them $13,319 in taxes for calendar year 2013 plus a tax underpayment penalty of $2,664 and interest of $472 for a total of $16,466 and gave me two freaking days to respond! Needless to say I am a bit bent over this.

To start off with there are a few things you need to know about how TWC is run for you to understand what is going on here. All of the income (ad revenue, donations, etc) goes into a PayPal account setup specifically for TWC, and all of the expenses for TWC come out of that same account. This makes it easy to keep all TWC financial records completely separate from all my personal finances. Everything is nice and simple until the IRS gets involved.

In 2013 TWC had an income of $19,211 from advertising, and expenses of $16,800 mainly in hosting but that also includes stuff like maintaining the domain name and some miscellaneous stuff like awards, hardware/software, and parking at the datacenter. So basically a net "profit" of $2,411 on which I paid almost $1,000 in federal income tax. The income information is reported on form 1099-MISC for each company we have an account with. I get those in the mail and they are included in my personal tax returns.

Also in 2013, we had the donation drive to buy the new server (Odin) which I did not claim as income, but also did not claim deductions for the money spent on Odin (Odin cost more than we received btw, I ate the difference). These are classified as personal payments on PayPal were not reported by PayPal to the IRS at the time. Here is the PayPal FAQ answer about that for those who are interested.
Are personal payments that I receive counted in the total that will be reported to the IRS?


No. Personal payments that are not payments for the sale of goods or services will not be counted when determining if the IRS thresholds have been reached and will not be included on your Form 1099-K if you exceed the thresholds. However, all payments received for the sale of goods or services will be used to calculate the gross payment volume to be reported. PayPal monitors accounts to ensure that personal payments are not being used for sales of goods and services.

So everything is just fine as far as I am concerned, and we go on about our lives on TWC. That is until the IRS audits PayPal, and PayPal audits my TWC account and changes the reporting status. This happened in January of this year and they updated form 1099-k and sent that information to the IRS, who then used the new information to recalculate my personal tax records. The rules about PayPal reporting income are listed here, but there are basically two requirements.

  • More than $20,000
  • Minimum of 200 incoming transactions


Now in a normal year, we don't come close to matching both of those requirements. We might hit the $20,000 requirement in 2015 (almost hit it in 2014) but there is no way we will hit 200 incoming transactions. As a general rule we have 3 transactions a month, one from each of our ad providers. If I change providers we might have 4 in a month for one month. And then there is the odd donation here and there which is generally about $25-40 a month spread across 2-3 transactions. In 2014 we had a total of 86 incoming transactions.

But in 2013 we had the donation drive which resulted in hundreds of incoming transactions. Most of these were not originally counted as they were classified as "Personal payments" so they were not reported by PayPal. Then the IRS audited my records in January of this year and changed those from "Personal payments" to "Sale of goods and services" which totally screwed things up. The 445 individual donations now put us well over the 200 transaction limit and we were already right at the $20,000 threshold, so all of this was now reported as income on the new form 1099-k.

PalPal is now reporting $32,311 of income on form 1099-k for tax year 2013. Now most of that is the $19,211 from ad revenue and the problem with that is all of that income is already reported on form 1099-MISC so I am getting banged twice on that income. The other $13,100 is donation money, and money that I transferred into that account from my personal bank account to cover hardware for both TWC and MCC and some consulting I had done on the servers. Yes, you read that right. Money that I transferred into PayPal is now counted as income for "Sale of goods and services" according to how the IRS is reading the PayPal numbers. So basically I am paying myself and have to pay tax on what I paid myself!

So here is what has been reported to the IRS:

Game Show Network LLC - $8,742
Google INC - $5,669
Lijit/Sovrn - $4,800
PayPal 1099-k $32,311

For a total of $51,522 which after deductions for hosting and other expenses is a $36,511 change to my Adjusted Gross Income. So they claim that because I failed to report $36,000 worth of income that I owe them $16,000 in taxes and penalties. I called them earlier today and after spending 1.5 hours on hold listening to crappy elevator music I got ahold of an idiot at the IRS and tried to explain to them that nearly all of this income is being reported twice, and they are claiming money I transferred to myself as income as well. She then told me I had to prove the income was listed twice, by sending them copies of every piece of paper related to TWC via FAX. And I have 2 days to get it done!

I am so pissed I cannot see straight. Its not like I don't have better things to do than run around printing hundreds of pieces of paper for the IRS and then sending it in via FAX machine. I don't even own a FAX machine anymore. Who the hell uses FAX machines?

I wasn't going to turn this into a political rant when I started typing, but now I cannot resist. This is the result of a government agency gone rogue and making up their own damned rules however they please. This is hardly the first problem you have ever heard of with the IRS, but maybe because this one hits us all closer to home because of our love for TWC it will get people to stop and think a bit when they vote.
Categories
Life on TWC , Managing TWC

Comments

  1. Aikanár's Avatar
    When. Words. Fail. ... and I thought our tax agency policy was the most stupid ... I guess there must be an escalation to superlative for such things.
  2. TheDarkKnight's Avatar
    Just saw this because of your post in Q&S.

    Is there anything we can do to help, GED? Probably not but between this and the Westeros mod issue last year I feel like the site is having a pretty rough year. Just wish we could help.
  3. Garbarsardar's Avatar
    So, you mean that our donations go to the friggin Republicans? Because as I read it the first four states by % of Federal aid towards revenue have Republican Governors. We'll get them basterds, GED, I promise you. Did I tell you about the time I had to prove to the Greek IRS that I am indeed in Taiwan and indeed a full time faculty member and indeed tenured? And that they asked me to translate the letters from the Taiwan IRS, from the University vice-president and the personnel office? And that they would only accept translation from our foreign office? And that there was no-one in the foreign office that could translate Traditional Chinese (as opposed to the simplified chinese)? And that after looking the Greek IRS guy for 5 minutes in the eye, after all this, he said "I guess it's alright then"?

    Come to Greece, GED.
    Updated April 14, 2015 at 05:26 AM by Garbarsardar
  4. Shankbot de Bodemloze's Avatar
    That sounds... crappy, to say the least.

    Hopefully it'll all be sorted out, but the time waste/effort must be a right royal pain.

    EDIT: Not sure how it works stateside, but how is TWC 'classed'? Is it a NPCs, a Sole Trader, an Ltd. etc.?
    Updated April 14, 2015 at 08:07 AM by Shankbot de Bodemloze
  5. PikeStance's Avatar
    For reasons I thought this was operated as a non- profit entity which functions as an entirely different thing.
    I haven't had to pay US taxes since I moved over seas.

    I had a similar problem years ago. The High School assigner had a habit of giving me games in district near my home. This was convenient. However, because I accumulated so much income I had to pay a tax on it. I was a substitute teacher at the time and every penny counted. Fortunately, the assigner sympathize and spread me around.

    A thought: Couldn't you use another pay service to spread the number of transactions? After all, if you ever wanted to raise income for an upgrade, we wouldn't want you to get "ding" again.
  6. Quintus Hortensius Hortalus's Avatar
    Isn't there a way in the US to file a request on preliminary injunction?

    And the answer of the IRS does not suprise me. It's better for them to first get the money and then may pay it back as the other way. If they have the money they can use it.
  7. PikeStance's Avatar
    Prior to the deadline you can file for extensions. However, this is past the deadline. Unlike a criminal case, once the IRS determined that you attempted to defraud the US Gov't, the burden of proof is on you. This is why you ned to keep all records of income, expenditures and payment of taxes. Two days is a bit short, but they are assuming you have all records. I am not sure if there is a legal means to slow down the process, though I am sure there are legal means after the fact. You can always sue in the US, but legal fees would probably not make it worth the effort unless it is a lot of money. <-- guessing here.
  8. Settra's Avatar
    The IRS is like women. The only way to make them shut up is to throw large piles of paper at them.
  9. Junaidi83 de Bodemloze's Avatar
    Whew, i guess i can feel what Uncle scrooge feeling when dealing with tax



    Good luck with IRS Sir GED, hope you can manage to explain everything
  10. Loose Cannon's Avatar
    You have much to be thankful for, GED.

    1. Be thankful that the IRS didn't just seize your bank accounts and then notify you. (Imagine them doing this on the day you have a $10K gasoline payment due to the oil copmpany)
    2. Be thankful that you didn't walk into your business to find an IRS man sitting behind your desk. (Note the office was only 6 ft by 8 ft and the front of the desk was pushed to the back of a reach-in cooler).
    3. Be thankful that the notice wasn't one telling you that your tax returns for the past 4 years were filed improperly due to improper corporation selection. (But then you get to watch your attorney blame your accountant and vise-versa. Of course, you then get to fire both of them and have a new accountant do-over 4 years of corporate and personal tax returns. And charge you accordingly.:laughter:

    4. Be thankful you are dealing with today's Nicer, Gentler IRS and not the 80's version:yes::executed: They used to "Kill first, ask questions later."
  11. s.rwitt's Avatar
    A thought: Couldn't you use another pay service to spread the number of transactions? After all, if you ever wanted to raise income for an upgrade, we wouldn't want you to get "ding" again.
    You can always sue in the US
    GED, please disregard this advice. The best way of dealing with an audit is, in fact, not to try to do a better job of hiding income. And you can't always sue the government because of Sovereign Immunity.
  12. LestaT's Avatar
    I am so pissed I cannot see straight. Its not like I don't have better things to do than run around printing hundreds of pieces of paper for the IRS and then sending it in via FAX machine. I don't even own a FAX machine anymore. Who the hell uses FAX machines?
    Governments are decades slow except when election year. Same with my government and same with yours I believe. Sorry not helping much since I'm pissed off at my government at this time, and I guess I'm pissed of at your government too.