Potential Tax Liability


I have a friend who inherited many electronic items including those of the audiophile variety. Through ads on this site and others, he sold about $60k worth of equipment within this year.   He is not a dealer and does not have a business, either physically or on paper.  Most of the payment transactions were made through PayPal. He is now worried about potential tax liability. Sometimes he created invoices. Sometimes the money was sent through PayPal's "Friends and Family" option. The money was transferred from PayPal to his bank account periodically. It suddenly occurred to him about possibly having a tax liability.    Made me curious too.   Would these proceeds need to be declared as income to the IRS?
kodak805
Hi- I am a retired tax attorney in California. I am not currently authorized to practice law in California ,due to non-payment of state bar fees, and for no other reason. Therefore, you should NOT rely upon this advice. I have represented both taxpayers and the I.R.S.for many years, and have also worked as an attorney-advisor to judges of the U.S. Tax Court in Washington, D.C.
 I can make the following general observations. Any federal estate tax would be owed and paid for by the estate itself, not by your friend, There is a minimum estate value that the  estate has to exceed before any estate tax kicks in. I do not know what that amount currently is because I have not checked it in many years, and it does change frequently. $5.4 million sounds about right, however.
  As for  any possible federal income tax liability, your friend most probably does not have any from the audio equipment sales. Your friend's basis in the audio equipment would be the fair market value of the property as of the decedent's death (or the alternate valuation date as determined by the executor). Since, as we Audiogoners know, the value of audio equipment almost always goes DOWN over time, it is extremely unlikely that there would be any capital gains, and hence no federal income taxes due from those sales.
   Hope this helps.  ---Steve
  
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^^^  Steve ...

This is one of the reasons I like this site so much. Usually one can find expertise in what ever subject one may be interested in besides audio. Also, there are folks like yourself who are here willing to be of help.

After spending 40 years as a Realtor in the Southern California market, I learned long ago not to give tax advise to my clients. I used to keep up with the tax code as it pertains to residential real estate, including rental properties and such. BUT, the changes to the tax code started coming so rapidly, I just couldn't keep up with it anymore.   Now, the tax code exceeds 77,000 pages and contains over 9 million words.

For a Realtor (or anyone else) to give tax advise to a client is just opening up one's self to a law suit. Anymore, I just refer my clients to their CPA or to their tax attorney. Knock on wood ... 40 years and never been sued. 

Take care Steve ...  and thank you. 

Frank
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Good chance your friend will get a 1099 from PayPal. If so PayPal will also send a copy to the IRS. I would imagine the person that does his taxes will have to fill out a form explaining the money from the sale of the estate items. Also probably proof of inheritance of the items sold.


Quote: 

What is Internal Revenue Code (IRC) Section 6050W?

Under the IRC Section 6050W, PayPal is required to report to the IRS the total payment volume received by US account holders whose payments exceed both of these levels in a calendar year:

  • US$20,000 in gross payment volume from sales of goods or services in a single year
  • 200 separate payments for goods or services in the same year
 

IRC Section 6050W applies to all payment processors, including PayPal. Our goal is to help PayPal sellers understand and comply with the requirements.

https://www.paypal.com/webapps/mpp/irs6050w

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