Ticket resellers beware: IRS takes aim at ticket resale profits
The past year has been dominated by news of Beyoncé’s Renaissance World Tour and Taylor Swift’s Eras Tour. As fans of both performers know all too well, a nod to a popular song from Swift’s Album “Red Taylor’s Version,” tickets have been incredibly difficult to come by. This is largely due to ticket scalpers, those who buy tickets to events en masse with the goal of reselling at a profit. According to a study by the Distil Research Lab, 42.2% of purchases on primary ticketing platforms are attributable to bots utilized by scalpers, forcing fans to purchase tickets at a significant upcharge on the secondary ticket resale market. However, the Internal Revenue Service is taking action with the help of President Biden’s American Rescue Plan Act, or ARPA.
The ARPA amended Internal Revenue Code Section 6050W so that the filing of a Form 1099-K, which is used to report payment card and third-party network transactions, is required for all customers with at least $600 in aggregate payments, whereas the previous threshold was $20,000 in aggregate payments and at least 200 separate transactions. The broadening of Form 1099-K reporting would also apply to e-commerce platforms, such as event ticketing websites Ticketmaster and StubHub. Therefore, if a ticketholder resells one or more tickets that result in an aggregate profit of $600 or more, the seller will be issued a Form 1099-K and will be required to report these profits on their income tax return. The information on the forms will also be reported by the payment platforms directly to the IRS, making it easier for the IRS to track compliance.
Initially set to take effect in 2022, the effective date of the revised Section 6050W has since been delayed twice. Per IRS Notice 2023-74 and related news release IR-2023-221, Form 1099-K reporting requirements will remain at the original threshold of $20,000 in aggregate payments and 200 transactions for 2023, with the threshold for 2024 set at $5,000. It is yet to be determined whether the $600 threshold will be applicable for the 2025 tax year.
While the expansion of Form 1099-K will likely hit ticket scalpers the hardest, a fact many fans might celebrate, individual ticket resellers should also be wary, as they are also subject to the reporting requirements. If an individual resells a handful of tickets throughout the year, earning a profit of $600 or more, they will receive a Form 1099-K from the ticket platform, which they will then be required to report on their individual income tax returns and pay tax on the profit. The reporting regime also extends beyond ticket resale, including other common online retail activities like reselling used or thrifted clothing or making and selling goods on Etsy. However, any profit resulting from such sales, regardless of whether a 1099-K is received, must be reported. Therefore, even if an individual earns a profit of $599, or even one dollar, they will need to include it on their individual income tax return.
While there does not appear to be a specific penalty for failing to report the amounts due on Form 1099-K, there are general penalties for which a taxpayer may be liable. If a taxpayer fails to report amounts found on their Form 1099-K and such amounts exceed either $5,000 or 10% of the total tax due, the taxpayer could be subject to a penalty for the substantial understatement of income tax, which is equal to 20% of the understated tax. Alternatively, if a taxpayer fails to pay the tax due on the amounts on their Form 1099-K, they could be liable for a failure to pay penalty, regardless of whether the amounts were reported on the taxpayer’s return or not. The failure to pay penalty would be equal to 0.5% of the unpaid taxes for each month the liability remains outstanding. Given the continuously-evolving nature of these reporting requirements, it is important to consult with an attorney or other tax professional to ensure you remain in compliance and avoid penalties.
