GrnEyedDvl's Desk

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.