Paypal/Resellers take note re IRS mis-reporting


Chief Factotum
Last month I received an IRS CP2000 letter for TY2015... specifically regarding "unreported" revenue through Paypal. My accountant says he's had 3 other clients call about 2015 CP2000's generated by Paypal numbers, and suggested Paypal may be repairing some accounting issues of their own for TY2015, and thus triggering feces rolling downhill. The problem, however, is that (and this is going to surprise nobody), Paypal is doing it wrong... by over-reporting accountholder "income." It appears that Paypal is reporting ANY incomING money as income, regardless of origin. Examples I found in my own analysis...

  • I decide to BUY something on ebay for $500. I use my cc. Paypal pulls from the cc, lands it in my account momentarily, then sends payment to the seller. Bam! I just got tagged with $500 in "income."
  • Because I hate PP, I sweep my account after ALL transactions (which can mean multiple times per day, if necessary). For items I've sold that require shipping, after sweeping the account, I buy shipping label (again, using my cc). Same as above, Paypal is reporting that cc payment as "income."
  • Here's the big whammy... I buy a $500 item using cc as per previous examples, then decide to return the item. Paypal reports the $500 as income TWICE... once as it comes off the cc to buy the item, and once as it comes back from the seller before it goes back to the cc. So they tell IRS I have $1000 in "income" for a completely null transaction!
I have confirmed Paypal's reported numbers per the CP2000 with my own numbers, and it is accurate down to pennies... so I am confident in my assessment. Obviously, these things can be sorted out with corresponding debits from the account, but... what a mess for me... that Paypal has created.

In my case, I was able to parse all the data in 3-4 hours, then my accountant went through everything and submitted amended return and CP2000 response (which costs me $$$, of course).
Last edited:


Level 2 Member
I've been doing this for years. I have to show and deduct account to account transfers as not being income and lower the amount they claim is income. Except for the part about paying for the shipping and that counting as income, that doesn't happen to me. That part is weird. Transfers in make sense to me, so it's not a big deal to make note of them and just adjust for them.

The IRS already tried this with me for 2015 but they tried it last year. They wanted 5K. They got a letter and $0. Case closed.