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How the Lab dropped the ball on w-9 reporting rules.


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The 1099K reporting rules that the lab just implimented that require filling out a w-9 form aren't new. In 2011 it was announced by the IRS that income earned on the internet would start being documented.

In early 2012 (almost 2 years ago) the IRS issued those new guidelines and forms, and notified every eligible company they could find that the change was in place and that they would get the rest of 2012 to put in place their reporting regimes.

One would assume the Lab was notified at this time, most certainly before the end of 2012...

Yet, instead of notifying it's customers that their Lindex usage habits might might trigger a w-9 form request, as the IRS suggested at the time, the Lab waited until 45 days before the deadline and issued those requests with no notice whatsoever.

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When it comes to taxes it's not LL's responsibility to inform the merchants that they might have income tax liability. Everyone knows they have income tax reporting responsibilities and should be reporting their qualifying income from their SL activities if they have any. So I see the drama surrounding this as more of a "sour grapes" whine by people who thought they'd found a convenient tax dodge and now are faced with the reality that they'll be required to pay. Everyone doing business in SL is an adult and is individually responsible for their own habits and the consequences of those habits (the taxes).

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it has everything to do with what was posted. You're assuming LL is responsible for making sure you pay your income tax. LL is not, you are and only you.

Your attitude is a typical one however in this "modern" society where people feel whatever they do, someone else must always be responsible rather than them. So now you're holding LL responsible for your tax evasion.

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Well, yes it is LL's responsibility in a way. Thus the regulations for them to do it and withhold if it isn't done and "drama" when LL says they have to do it.

What previously needed less work by claiming it as plain old income is now slightly more irritating by the extra work.

Judging by the amount of people that have gotten these notices though and claim that they don't qualify based on the restrictions (which I tend to believe), if you want real drama, wait until LL withholds 28% against some people who actually didn't qualify.

It'll be like getting multiple billed for marketplace enhancements only different.

Thankfully though, you'll be able to report those kind of "mistakes" to the IRS. As anyone collecting tax is acting as an agent of the government by definition, I don't think those kind of mistakes will go over well.

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Had to revisit this one, upon swinging by again to catch up on posts. Especially to clarify my sarcastic bit that LL is partially responsible in this.

Your point is actually a good one, particularly because the first year of these regulations swamped the IRS with reporting that was mostly unnecessary. Many companies didn't understand what did and didn't need reporting and LL being late to the party, seems to be making the same mistakes as the companies that bogged down the IRS in the first place.

LL isn't a 3rd party processor, so they really don't need to do this. In fact, they probably shouldn't. Unless by some stretch they've got an agreement with PayPal to handle the reporting and PayPal won't report it under their agreement. This is doubtful.

If both LL and PayPal were to report the same income, the IRS is going to be expecting you to pay double the tax, unless you dispute it, which also opens up LL to a civil suit.

In a case where there is more than one 3rd party processor, the last in the chain bears the responsibility of reporting, which in this case would be PayPal, not LL. Again this doesn't fit, because LL is not a 3rd party credit processor, and so the burden remains with PayPal.

Only in the case where LL pays directly (wire transfer or check) would they need to issue a 1099 and thus request a W9.

On the flip side, if you operate as a business and pay more than $600 in tier, since tier is a service, you can certainly issue a 1099 to LL and make sure that the IRS has your tier payments to LL on record by doing so. You don't "have" to because you don't have to issue a 1099 to a corporation, but you can.

At any rate, LL seriously needs to hire an accountant that knows what the hell they're doing, because they're botching this one too. Competence has left the building over there.

Talk to your accountant if you have one and explain that the last processor in the chain is PayPal. They'll probably set you straight.

At the very least, try to get an assurance from LL, that PayPal isn't going to be reporting the same income that LL is. Because that's just idiotic if they do.

Disclaimer: Not legal, financial or relationship advice. Tea leaf readings available on request.

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Dartagan Shepherd wrote:

Had to revisit this one, upon swinging by again to catch up on posts. Especially to clarify my sarcastic bit that LL is partially responsible in this.

Your point is actually a good one, particularly because the first year of these regulations swamped the IRS with reporting that was mostly unnecessary. Many companies didn't understand what did and didn't need reporting and LL being late to the party, seems to be making the same mistakes as the companies that bogged down the IRS in the first place.

LL isn't a 3rd party processor, so they really don't need to do this. In fact, they probably shouldn't. Unless by some stretch they've got an agreement with PayPal to handle the reporting and PayPal won't report it under their agreement. This is doubtful.


I think it has to do with that LL had to register with the FinCen as a 'money service business', because they are a trader in virtual money. They must now comply with all requirements imposed on financial institutions.

But when I investigated a bit furter how it works or non US residents, I came across a lot of people who sell at spaces owned by US compagnies, for example add developpers who sells at App Store or Google Play, photographers who sell photo's on stock sites, artists who sell textures for printable objects, and so on... they all did get these tax forms. People who sell at several selling points, have to reply the forms to each selling point.

 

 

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Can't answer to non-U.S. reporting, although FinCen is not the IRS. True that those regulations recognize virtual currency and thus LL could be seen as a 3rd party but not likely by the IRS, which is what counts in this particular bit.

LL specifically mentions the requirements that govern that reporting of transaction/income limits, which again only applies to the last processor in the chain that actually puts money into your account or pocket. Outside of direct payments by LL to your bank, this is PayPal.

At least here in the U.S., if that income is double reported, the IRS is going to tax you twice on the same income if PayPal also reports it.

LL may "think" there's a connection between FinCen and the IRS, but in this case, they're wrong if PayPal is still reporting on your income.

If there is more to it than standard business, then LL needs to disclose that. Otherwise this just isn't the way the real world operates.

Other sites may or may not be in the same position of misunderstanding. Those that do direct payments to their merchants are within the right context and if they're on the ball, don't report income that goes through whoever they use as a credit processor, because the burden is on them.

There's not enough information given here by LL to operate in their blog post or the email they sent out. They need to get off of this 1099-K thing though. It doesn't apply with the IRS and LL unless there's more that they're not being forthright with. 1099 on direct payments yes. 1099-K ... just no.

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Interesting and intelligent comments on this subject (for a change).  Since LL rarely bother to look at the forums, as we have seen in other threads where residents have emailed them directly and received an email reply, would it be at all possible for you to put your information into a mail and send it to LL and see what kind of response you get?  You would then be able to paste the reply back into this thread and we would be able to see what point LL is at and how they are interpretting these matters.  I do agree with one thing though, and I had not considered this before, double taxation will result if LL witholds tax and PayPal also witholds tax.

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