Paypal tax issue, please advise

[Psamsara 60]

Ok people i really need your advice on this one. This migt be more towards a USA folks, but maybe it's the similiar situation in Europe and other places...

To make the story short as possible - i'm from Serbia, and i have been using my sister's paypal (she is based in USA) for over 10 years. Never had a problem. Meanwhile, Serbia got paypal... first you could only send money, some time after you could also receive it. One thing that Serbian paypal can't do is send money as F&F. For all these reasons i've stuck with my sister's account... sending direct payments and using ebay quite a lot (this account wasn't connected with ebay or discogs for selling, only direct transactions were for selling purposes). As you know some sellers insist on F&F payments so that's a really important option. This year, paypal reported IRS a certain ammount that "she" got... it seems there's a treshold. When i got into this i realised that in 2020, 11 transactions were an "issue". Those are the payments that went "for goods or services". Out of these 11, 8 were "mine", sending money from my friends accounts, who have Serbian paypal btw. Through one i sell on discogs (through him there was 7 transactions), and through other one i sell some stuff on ebay (through him there was only one transaction). 2020 was a year it was, and i ordered quite a few records trough ebay which i send to USA address, and someone brings them to me... but since all was stuck, i overspent so i needed to inject money into account to keep things rolling. Other 3 transactions are basically 2... one guy mistakenly sent for "goods or services" i immediately refunded him, and he sent it again, this time as F&F...  the other guy sent for "goods or services", wrong ammount first time, so i also refunded, and then he sent the right ammount but also for "for goods or services"... both of these transactions were recorded even though i refunded the first. So paypal is only recording payments going in that way, regardless if they were refunded. I obviously didn't paid any attention to this, as i didn't know it could be a problem, so i always put "paypal as a gift or please cover the fees" on my sales, and luckily basically almost all the transactions went as F&F. There's some kind of document, 1099 K, and my sister freaked out when she saw it, since that ammount from these 11 transaction was not reported. She already done everything with her accountant for the last year so she's scared if IRS will make some kind of a problem about this. Paypal didn't recorded any of the payments that went as F&F, and there were quite a few last year. 

My questions:

a. It's legal to get payments as F&F without any obligations to report it?

b. Since Serbia is limited to send money as F&F (if it wasn't i would obviously send money that way), why would anyone need to report money that went in this way, since it's clearly a system issue. Her mother, for example, lives in Serbia and she is entitled to send her money if she wants to. Since she can't send it as F&F is seems rather strange that she would need to report this as income. She obviously didn't do any kind of service, nor she sold her anything.

c. All these years that paypal account was used ONLY as a balance. Money got in on paypal and was spent there. It was never moved to her bank account, nor her credit card. Does that also makes a difference?

Edited March 28 by Psamsara

[Psamsara 60]

Anyone?

[Thinksmart 389]

I think it's difficult for anyone to comment specifically on someone's situation, especially in relation to USA and Serbia.  It's unlikely anyone will be able to comment informedly.

I do think that using other people's Paypal accounts for anything more than one off uses, is potentially storing up future problems.  Paypal's are person and email account specific, not shared.  They link to your bank so using someone else's account, especially for selling - isn't a good idea.

Those people requesting 'Friends and Family' all the time to avoid fees, are often not using it for what it was intended for and this is becoming an issue.  Many people I do not know request this and if they are checked - it's going to be an issue for them later on.

I'm sure people wish to be helpful, but this is primarily a Soul music form and the complexities of tax and PayPal across two countries are likely beyond where anyone feels able to comment specifically here.

[Psamsara 60]

Yeah i hear you. I knew it will probably be difficult to get any info.

The thing is that i didn't have an option other than to use her account. It was that or to quit buying records, and the other definitely wasn't an option. So i had to use it, and used it, like i said, for over 10 years.

The info i was hoping to get is - are there are any new norms present, and if anyone also had something similiar going on.

[John Hart 101]

Hi Psamsara,

                     Like the 2 Tims ,Ashibende and Brown ,I was a senior Tax Officer in the Uk ,it is still in the Hated Genes ! But will try and help.

Paypal and Tax  agreemants & rules differ from country to Country,but generally the following apply .

1, Gifts are normally tax free up to about £15,000 . above must be declared.

2 Using paypal as buyer /seller,, you must agree to their terms " Using Paypal Family and Friends to pay for goods eg records ,is forbidden . Fees to a seller of goods are 2.9%plus 50 cents. Dealers ask you to relinquish your Paypal rights  for  5% thank you very much.

3 ,Paypals payment protection covers only genuine gifts to family or friends ,,That you Know Well ! EG ,monie for your Student daughter ,or birthday present etc

4. There is no limit to the number of Email accounts /Names you can have.

You ask us for any "New  Norms", er No , you have created a tangled unecessary web , you could have paid goods and services or bank transfer but like many [Me ]  you  where coerced into breaking agreements  which could as "Think Smart " states Come back to bite Us in the future.

As we know Paypal is a multi Billion dollar company ,nonetheless it would be easy to flag up all these Soul Source deals to Uncle frankie etc,etc. probably amounting to Thousands of pounds daily . Discogs and  Ebay have largely stopped it . All this info and more is on Google or paypal, Discogs ,Ebay , terms and agreements.  {All above is my own personal thoughts and is no way a substitute for official Legal advice} .

[Psamsara 60]

Thanks for that info John.

Yeah, pretty sure "quite a few" are using paypal this way.

I just find it funny that with me problem occured only with the transactions that actually were not selling, but just transfering the money, which is, as you said, perfectly legal. It wouldn't be flaged if there was an F&F option.

This is obviously a very touchy subject. I just needed some kind of advice.