New ebay payments require SS#?

Thanks to the OP for this post. I was not aware of this whole issue. Several other posts have excellent information and thanks to them as well.

As a former small business owner I can make a few points.

1. The issue is legitimate and it is not some sort of scam to get your SSN.
2. People who generate over $20,000 from eBay sales probably have a business. They may sell some or all of their stuff through eBay. Hopefully all of them file tax returns for their business. The 1099 will be one piece of paperwork in their tax return. It will need to match up with their other business records to protect them from getting into trouble if audited.
3. In any business you keep track of your cost of goods sold and deduct that from your gross revenue. They should know exactly what they paid for every item they sold on eBay.
4. If you are selling your own used gear, say several pieces that bring several thousand dollars each, you could trigger the 1099. You will need to know what you originally paid for the gear so you can show the IRS that you lost money on the transactions. There will be no income tax due because you didn't make any money. Now I can proudly say why I keep all of my receipts.
5. I can't speak for the IRS (but my wife used to work for them) - they have much bigger fish to fry than trying to tax a few dollars from audiophiles. I couldn't find where they have issued any rules about the new requirement but they will come. By the time you receive a 1099 from eBay and file your tax return there will be rules on how to handle it. The IRS is going to want to simplify this as much as possible.
6. Someone mentioned that eBay had asked for their banking password. Nobody needs your password to deposit money in your bank account or take money out of your account for direct monthly payments. DO NOT ever give your banking password to anybody for any reason. If someone actually asks for your password you are being scammed.
7. Regarding sales tax, if you live in a state that charges sales tax and you buy from eBay you are already paying it. That's one of the beauties of eBay - they take care of that automatically. It is transparent to the seller. If you don't like that then you should get politically involved and propose a different way to fund your state's government. Just because you buy something online doesn't give you the right to avoid sales tax.

As online sales take a bigger share of the retail market we will see our tax laws change to insure that these transactions are fully reported. Any honest business will already be reporting these sales in their tax return but I'm sure that there are thousands of small players who generate a significant income from eBay and don't report it.

@mtrot 

In the case where you don't have the receipt for a piece of gear you simply estimate it's original value. In 99.999% of the cases you lose money on the transaction.

This whole thing will only be an issue if you get audited. You will report no income from your audio sales on your 1040 and the only way the IRS would challenge that is if they audit you - and even then they wouldn't waste time worrying about a piece or two of stereo gear.

The only time a regular taxpayer who's not claiming bizarre deductions (under $200k income) gets an audit is if they win the IRS lottery and get a TCMP (Taxpayer Compliance Measurement Program) audit that goes through your return line by line. Most people go through their lifetime without ever getting an IRS audit. That means that the IRS takes your word for it when you file a tax return. It really is the honor system. If you claim that you received no income from selling your stereo gear then that is what the government will base your taxes on. You do not have to supply supporting documentation with your tax return.

Also, most people don't realize that the IRS us understaffed and they don't have the time to worry about nickels and dimes from regular taxpayers. Their decisions, virtually all the time, are based on common sense. If you inherited a 1970's vintage Marantz 2325 receiver that you sold for $1500 and have no receipt the auditor isn't going to waste time trying to research what it originally cost. The other interesting thing about inheritance is that you don't pay taxes on what you inherit - so there's no issue with that anyway.

In other words, don't get wrapped around the axle worrying about the tax implications of being an audiophile.