The IRS Wants 1/3 of Your Baseball Card Collection

Katherine Mangu-Ward | August 24, 2006

Oh how the mighty have fallen. When PayPal was getting started, its founders had big libertarian dreams: "PayPal will give citizens worldwide more direct control over their currencies than they ever had before," [co-founder Peter] Thiel predicted. "It will be nearly impossible for corrupt governments to steal wealth from their people through their old means..."

But this week the IRS let slip that it is (once again) going after hardened criminals selling baseball cards on eBay:

The IRS' attempts to promote better reporting of online profits has been stymied by the fact that most online transactions leave behind very little evidence for the tax man to track, especially if shoppers don't use a credit card or opt for an online payment system such as PayPal, which is also owned by eBay.

"A lot of things go unreported because there's no paper trail," explains Cindy Hockenberry, a tax information analyst at the National Association of Tax Professionals. "It will be an administrative nightmare to figure out who has to report and what has to be reported and trying to track these millions of people that buy and sell on the Internet," says Hockenberry.

So much for the founders' dream that "PayPal would grow to become an extra-governmental system of currency, something reminiscent of the world described in Neal Stephenson's novel Cryptonomicon, in which programmers use encryption to create an offshore data haven free from government control." Of course, the company was sold to eBay years ago. PayPal's former COO is still doing his part for freedom, though. He's a movie producer now. His first project? Thank You for Smoking.

Read the rest of Radley Balko's great review of The PayPal Wars here.