If PayPal has filed a 1099-K in error, how do I go about explaining this to the IRS?

[ekoumvak]

I received a notification from IRS that my 2014 return had been filed incorrectly due to a 1099-K not having been added. The situation is slightly complicated however it is definitive that the notification was sent in response to an error on Paypals part. I have two different PayPal accounts, one of which had a total of 191 transactions for the year, my other PayPal account was created simply in order to receive transactions from myself and separate business and personal accounts.. This secondary account got marked for having 11 transactions for the year, pushing my total number to over 200 and therefore creating the need to list the 1099-k for third party transactions on the years taxes (specifies a need if over 20,000 dollars or 200 total transactions). I have a log of all my transactions for both accounts, and from the secondary account (and in some cases also on the primary) it is showing transactions to and from myself as valid to be counted as a part of the 200 threshold which necessitates filing if exceeded. How do I go about resolving this issue to the IRS? During that year I had never received any 1099 from PayPal, and even now when the total exceeds 200 transactions, it does so based on an error.. Personal transactions (such as "sending money to a friend" through PayPal are NOT supposed to be listed as valid.. The IRS is asking for nearly $9k after penalty fees for incorrect filing are added, I don't want to get stuck paying that based on something PayPal has filed improperly.  Any help would be much appreciated. Thank you

[Lisa995]

Are you receiving money through PayPal for items or services that you are selling online?   If so, did you report ANY of the money you received through PayPal as business income?

[TaxGuyBill]

PayPal didn't really do anything wrong.  Although they are REQUIRED to file it for 200 transactions, they can file it for any amount.  They also have no idea what is personal and what is business, so they properly recorded all transactions.

Respond to the IRS notice telling them exactly what you said here;  it was personal transactions.  They may ask for proof.   Print out the log and show what each transaction was for.  Just make sure that you did report any business transactions on your tax return.

[ekoumvak]

I was under the impression (from information posted on Paypals website) that ONLY sellers who exceed the 200 transactions threshold will receive a 1099-k.
I had not listed the 1099-K information because I had not received any 1099 at the time. In addition to this, my first year selling on eBay (and ultimately my last year selling on eBay) was not what I would consider successful.. After factoring expenses (cost of items for sale, shipping, eBay fees, etc), my income had become an outcome as I had more total expenses than total income.

Am I going to have to file an amended return for the 1099-K issue? I do have logs of all the transactions thankfully, but how do I include them in the return with the explanation of why they were incorrectly logged?

Thank you for the help

[ekoumvak]

From Paypals website:

"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."

[Lisa995]

You are required to report all business income, whether you get a 1099 or not. Then you list your business expenses to offset that business income.  This would all be reported on a Schedule C and included with your tax return.

[ekoumvak]

In this case, I will need to file an amended return with that information added? In addition to the proof of 1099-K personal transaction situation

[Lisa995 · Accepted solution]

Yes, you'll need to prepare an amended return to include the Schedule C.  You will also need to write a letter explaining the personal monies that are included in the 1099K.   I believe the CP2000 letter you received has instructions on the backside of one of the pages that explains how to send a 1040X along with the CP2000 response.. You'll write CP2000 across the top of the 1040X return and send it along with the explanation letter and the response page of the CP2000 to the address shown in the CP2000 notice.

[kpva36]

Yes, Paypal is doing something wrong. Paypal is doing a lot wrong. 
They do not verify with the account owner which transactions are income to report. 
They choose the figures and just send them to the IRS, without ANY verification of those figures. 
Basically, they are guessing at what needs to be submitted. 

My 2020 1099 from Paypal is completely INCORRECT.

Not even one figure they submitted to the IRS is right. 

This has been reported by Sellers on Paypal for years. Paypal just doesn't care if they do it right, and that is fraudulent behavior and subjects their account holders to serious IRS violations. 

[kpva36]

Yes, that's what it says. 

But what Paypal does is an entirely different thing. 

[catindc]

Exactly!  I received a 1099K form out of the blue and NEVER sold with PayPal or anyone else for that matter. It said I earned $6400 and did 47 transactions. I have spend HOURS on the phone with PayPal and no one seems to track the previous call. They have given me no tracking number and I am about to call the news media and the IRS. Each time I call, I get more and more information. I learned that there were a lot of other people who also were receiving the same type of letters in the mail that I did. The scary thing is it looks so legit. Has the last four of my social, my address, etc. Has anyone else faced the same thing? I am VERY frustrated. 😠

[ivoryguy36]

I also got a 1099-K out of the blue that says I received over $46k!  I sold a few personal items on ebay and received less than $1k.  They've removed every capability to speak with a human at Paypal unless they call you.  Even customer service people responding to message center keep sending me old links to "Call Us" that don't work!  Even the customer service reps don't realize that Paypal has disabled all the "Call Us" links that generate a one-time passcode.  It's also impossible to reach a human or leave a message when you call them.  All voicemail trees end with information that directs you to contact them online.  I received a response in the message center and a case has been created, but nothing has been done for weeks on that case.  I've also sent a certified letter, and no contact from that either.   I did receive a call from an empathetic foreign customer service rep that escalated the case, but still nothing.  I'm about ready to start filing complaints with every state and federal agency that will listen, including the FTC and state attorney general.  I do NOT want the IRS to scrutinize my return, and I do NOT owe taxes on $46k!

[ThomasM125]

You need to respond to the IRS and explain that the form is in error and continue to work with PayPal to get it corrected. That is all you can do for now. 

[terrizahorn]

Hello. Did this ever get resolved? That's a crazy amount of money ey and how do you prove this to the IRS, especially when no one will help. Did you report them? I have incorrect information on my PayPal as well, but it's only a few hundred dred dollars. Still, it is definitely not right