IRS send me a letter, please help

[jessica7393]

I forgot to report my income tax in year 2014. IRS sent me a letter today saying I own them $8,xxx. in 2014, I received about $20,xxx on paypal in 2014

My incomes were coming from..

1. I never reached the $20,000 before but in 2014 year I sold many of my used brandname bags, and I never kept any receipts. (I sold my used brandname bags ~ $6000 in 2014 most of them were balenciaga bags that made in year 2007.

2. I sold many coach bags that I purchased from outlet before 2010. (I have been banned from coach since 2010, so I stopped selling and buying but I still have many coach bags  left that I was too lazy to get rid of them. Later on, I started to sell them again in 2013 and reached $2x,xxx in 2014) I just sold them to get my invest money back not making a lot of profit from them as mostly of my coach bags were the old model.

Some that I bought online I still keep the emails but some I purchased for the store back in year 2006-- I never kept any receipts. but I still remembered the price that I purchased from the sale price. 

I feel really regret that I neglected to check for the tax. Will IRS request me to show them all the receipts?

[jessica7393]

Sorry my misunderstanding.

I have been selling on ebay since 2005 only 1 or 2 years (selling my clothes, shoes and metro card), not a lot of selling only as a hobby, and then I did not sell anything just buying and start selling again in 2013. As I told you I sold my personal own brand name bags, mostly balenciaga and chanel which I do have recipts but I did not have receipts for the coach bags as I just loved coach at that time buying a lot for myself and family and sold some on ebay, not more than 10 bags from 2006-2012. 

[jessica7393]

just wondering, do they correct tax on personal used items?

I used to have about 30-40 brand name items (small accs / handbags / shoes ) and I used all of them and some I bought used. If I sold them less than the price that I purchased, will I have to pay tax for the price that I sold? I do have receipts for my  brand name items.

Thank you

[posting*master]

If the cost of an item was more than the price you sold it for, then there's no profit to report.  If you make a profit, that is income that needs to be reported to the IRS. Here's the IRS main Help page for "online auction sellers":

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Tax-Tips-for-Online-Auction-Sellers

[femmefan1946]

Free advice is worth every penny you pay for it.

Consult a tax accountant with experience dealing with the IRS and preferably some experience with online businesses.

[thevintagesilvershop]

Curious, why were you banned from Coach?

[terprov]

My dad was an accountant, this was several years ago, but he told me if they find fraud in the last 3 years, they can go 7 year, if fraud is found in that, it can take you to 10 years.  OH girl you are in for world of hurt, you have got to start digging out information on paper, something that can be seen.  Dig for every receipt you can and make logs too.  All you got to show is you had more expenses than you made.  They will make you with your purses because they are older not take full price of them.  You will have to prove they retain their value and or increase or decreases.  

This is in your hands, you can do this yourself or find an accountant who will not take as much as the IRS wants to defend you.  You can do this yourself, but read up on what they allow, you need to do this as a home based business and like I said before, EBAY will sell you down the river if the IRS starts digging    

[takikawa4]

I'm sorry, but how do you forget to report income to the IRS???

[gramophone-georg]

First order of business... calm down.

What you are having is a mail audit- they're not invasive and if you do things right not only will it not get beyond that stage... you'll wind up owing far less than they are asking for and maybe nothing at all. What you have is a computer generated letter basically saying "wait a sec... this doesn't look right. What's going on?"

Here are the basic rules of thumb to follow (in my extensive experience- I deal with a family trust, a relative's IRAs, and my own LLC and S corp businesses so I have been a frequent rider on this train, LOL:

1. Stay in prompt communication. Not responding or delaying a response is asking for trouble.

2. Be truthful. If you need time to get to a tax person to have things reviewed write them back and ask them for an extension of time to comply with the letter.

3. Stick to the bare bones facts requested in the letter. No more, no less. Do NOT volunteer anything they do not ask you for.

4. Communicate in writing, and write in passive voice, again, sticking to the facts.

Example:

Dear XXX:

Thank you for bringing this possible oversight to my attention. As I am a casual eBay seller primarily disposing of a considerable horde of personal items, I am requesting an extension of time in order to consult a professional to review the information in question in case of any inadvertent omissions on my part. I have an appointment with an advisor on (date) and will likely need X amount of time to gather further information. I will follow up with you in writing by (date). 

Thank you in advance for your kind cooperation.

Sincerely, 

You.

Make an appointment with a tax advisor now, and photo the appointment card and attach it to your letter. Ask for at least a 60 day extension beyond that date.

There are no guarantees any of this will work, but it's always worked for me, and once you establish communication and you do what you say you are going to do, they'll usually accept what you tell them (within reason) without issue. That's been my experience.

Don't talk about having done things a certain way in prior years, don't talk about any other aspects of your taxes unless they specifically relate, don't make small talk. Just very politely and promptly stick to the facts.

Relax. They're not going to come haul you off to jail. And, if you wind up owing more than you can pay, they will work out an easy (albeit high interest) installment plan.

Just don't 'clam up' because you're afraid and you're hoping it'll go away, don't give them any more info than they are asking for, and do NOT try to bee ess them. They've heard it all.

Good luck- you'll be fine!

[gramophone-georg]

I meant to include with the above- if you do wind up owing money and you've never had tax/ audit issues before, you can write and ask them to forgive some or all of the penalties and they may agree.

[posting*master]

I have been audieted many times and all of that is excellent advice!  Especially the parts about promptness, staying calm, and not volunteering any information. 

[15goodfinds]

Could be a scam.

Call the IRS at 1-800-829-1040. That's their real number, and ask them about it.

Who do they want you to pay?

What's the return address?

Post a picture of it on here. Just make sure to take out any personal information.

[impalajohnny]

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@takikawa4 wrote:

I'm sorry, but how do you forget to report income to the IRS???

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It's easy for people with small incomes that typically don't owe any tax to forget or not bother. The assumption on the boards is usually that those not reporting are "cheating". In reality many ebays sellers could file, pay nothing, and qualify for some free government loot via refundable credits like EIC. Not taking advantage of free money is hardly cheating.

[ki_korners]

You're located in Thailand. Is the U.S. IRS?

[takikawa4]

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@impalajohnny wrote:

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@takikawa4 wrote:

I'm sorry, but how do you forget to report income to the IRS???

---

It's easy for people with small incomes that typically don't owe any tax to forget or not bother. The assumption on the boards is usually that those not reporting are "cheating". In reality many ebays sellers could file, pay nothing, and qualify for some free government loot via refundable credits like EIC. Not taking advantage of free money is hardly cheating.

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Sorry, but I've never, ever forgotten to include potential income, even if it's below the level that's required to be reported.

[redbud_farm]

Not cheating as much as not very smart as op has seen it can open a big can of worms.

Few qualify for EIC that sell here , it's not wise to even file for it unless you have proof of income and proof you are up to date on taxes owed.

Filling to get "free money" can lead to needing proof you are not a business and if found under IRS or state guidelines to be a business to ha e the proper requirement paper work.