Experts say IRS is ‘taking money’ from fantasy sports to cause tax problems

According to tax experts, the new rules of the Internal Revenue Service could lead to a significant increase in the number of checks and taxes for Americans, especially those who use transaction services such as Venmo and PayPal for fantasy sports.

CPA and tax legal expert Bruce Willey told Fox News Digital that the new changes represent one of the biggest “money grabs” by the IRS in recent memory and are likely to hit taxpayers “like a truck.”

“Most Americans are about to get hit by a car and they have no idea. If they are not ready for this, things can become quite unpleasant for people,” he said.

The American Plan of Rescue Act (ARPA) of 2021 amended a section of the code that lowered the minimum threshold for Third Party Settlement Organization (TPSO) reporting from $20,000 and 200 or more transactions to any transaction of $600 or more.

The code change, approved by Democrats and signed into law by President Biden in March 2021, will require TPSOs like Venmo, PayPal, Etsy, AirBnB and others to submit forms 1099-k to the IRS and users if their transactions are over the amount. If a sports betting app like FanDuel or DraftKings uses these payment processors, you will pay taxes there even though sports betting is already included in the current tax code.

“This is a huge fishing net that will pull in a huge number of people in America,” said Willey.

The code change is likely to burden those involved in fantasy sports leagues and professional sports ticket sellers with additional obligations ahead of tax season.

BakerHostetler National Tax Authority Chairman Jeff Paravano described a situation in which a person sells preseason games at a loss but still makes 1,099 in gross receipts. The IRS oversight will not take into account how much they paid for those tickets or their game losses and will need to provide additional information.

The taxpayer may or may not have taxable income due to this reporting, but may receive a form even for the sale of a single ticket, depending on the amount of the sale.

“Someone who does fantasy sports. You can only deduct losses up to the amount of your winnings. So better keep receipts of your losses. This will be a deduction from the money you receive,” said Paravano, a former senior adviser to the Assistant Secretary of the Treasury for Tax Policy.

Paravano said the changes will likely also affect fantasy sports leagues, where co-workers, friends and family members place cash bets. He suggested that 1099 would be issued for the total amount and would not include the bet. Tax penalties are likely for those withholding money to receive 1099 along with the third party payer used by the group.

“I’m afraid that 1099 will be sent for things that are not taxable income and the IRS doesn’t have an easy way to figure that out,” he said.

Both tax experts suggested that changes to the code could lead to more checks and taxes for Americans, or at least more correspondence with the IRS.

Government leaders have repeatedly dismissed the idea that the IRS changes would negatively impact any American earning less than $400,000.

“Legislators are hypocrites,” Willie said. “It’s one of those things when they say one thing while they take a donation to your campaign, and then they turn around and go to Washington and do something completely different.”

“The reality is that they said that no one making less than $400,000 a year would have an increased chance of being audited or paying more taxes. This is a flat lie. It’s not accurate. They lie to you,” he added.

National Taxpayer Advocate Erin Collins predicted last week that the number of 1,099s filed would double once the code change went into effect.

The Joint Committee on Taxation estimated that the new provision would generate $8.1 billion in revenue over the 10-year budget window.

Calling it a “hidden tax increase,” Willie said it’s “a fantasy world” to think the move won’t increase inspections and taxes.

“If it didn’t increase anyone’s taxes and increase their chances of being audited, then what are the 87,000 new hires going to be doing, where is the 9.1 billion he’s estimated to be going to return—where does that figure come from? from? It will affect the fabric of American life,” he said.

In addition to fantasy sports, Willie and Paravano also argued that IRS changes would affect Americans in other ways.

For example, sending money to a child in college may be considered a gift under current US tax code, as long as the amount does not exceed $17,000. However, both the parent and the student will still receive a 1099 form to request confirmation.

“The horror is that a parent who pays monthly rent to a college student, guess what, can get 1,099,” Pavalano said.

The changes to the code will also include transactions on the Facebook marketplace, lending money to a friend, reimbursing rent for a roommate, paying a colleague for dinner, paying off a bar bill, sending a mother to a child with gasoline, and raising money to buy a trainer. gift.

If you are using a transaction provider like Venmo or PayPal and the amount is over $600 within a year, 1099 will most likely follow.

Interestingly, taxpayers will not receive 1099 if they use Zelle due to technical definitions from third-party settlement organizations. Generally, checking is the safest option to avoid triggering 1099.

The current amount of information returned by the IRS is $4 billion a year, with 99% of it being filed electronically. They just rolled out the 1099 information return electronic portal.

The new system is expected to increase paperwork and cause more discrepancies between the IRS and the taxpayer.

“In a vacuum, one of these transactions doesn’t seem bad, but if we now have 4 billion information returns and we think it could double, then there’s just going to be a lot of compliance burden,” Paravano said.

“What comes to my mind is the image of a dog catching a bus. You caught the bus, what are you doing with it? You have all this information and you have all the reports. What will the IRS do about it?” he added.

In the House and Senate, both parties support raising the threshold to $5,000.

Republicans would prefer to return to the previous threshold of 20,000 and 200 transactions, Paravano said, but bringing back the old rules will be difficult given spending concerns.

Willie called the situation an “enforcement nightmare” for the IRS and a nightmare for the taxpayer.

“You should call your legislature and complain if they voted in full on this bill,” he added.

A study of 2022 IRS tax audit data found that the lowest-income taxpayer was five times more likely to face an audit than the highest-income taxpayer.

“The IRS correspondence process is designed to expend the least amount of resources to conduct the most audits, resulting in the lowest level of customer service for the taxpayers who need help the most,” taxpayer attorney Collins said of the report during the meeting. annual report to Congress.

In December, the IRS said it was a new one-year tax reporting requirement that would likely affect tax returns filed in early 2024.

The IRS said the change was intended to encourage Americans to evade taxes by not reporting their full gross income. However, critics called it excessive government intervention that could hurt the American middle class and small businesses.