Ebay and Paypal

[JamesW1]

Hello All,

I have just filed on March 7th 2008 and my meeting with the Trustee is on April 1st. I have a small business that is being dissolved also.

I had sold quite a bit of my sporting goods in Oct, Nov, Dec and the beginning of Jan on Ebay. All of the sales were less than what I payed for them originally. When contacting the IRS they said because there was no profit I did not have to claim it as income.

The money went into my PayPal account. I was able to withdraw money and pay for things with my PayPal debit card.

I did not include my PayPal account on my paperwork as I would fail the means test most likely and a Chapter 7 is the only way out for me after my divorce.

Will this account show up somewhere? I did one transfer from the PayPal account to my personal account in September but I was not asked for my personal checking account statements just my business ones.

Thanks for your help.

[Flamingo]

It all depends on what and how many transactions show up with the outside account you used to open your PayPal account. All PayPal accounts require a checking account and/or a credit card as a back up listed with them to open an account. The account is considered a "custodial" account; If you only use it now and then to sell items as you stated I don't think you have too much to worry about; however, if you have a business going on with eBay or somewhere else and utilize the account holding money in there, then you might have a problem if it should somehow come to light. Custodial accounts, like trusts, hold money for you and that is money you would have expendable during a certain period of time whether you can withdraw it now or several years from now if you were the beneficiary of a trust, say, from a relative. I am assuming you have money in there now if you state you will fail the means test if you report the account. While I can't tell you whether or not anything could be discovered, it all depends upon how closely the trustee looks at your bank statements, whether business or personal, and if he sees ties to PayPal, you may be required to submit that account information.

[JamesW1]

Actually there is only $3.20 in the account. I thought i would fail the means if they went back to the previous months.

[FreshLikeADaisy]

James, you should know that at my 341 in January, a couple with a failed internet business were ahead of me and the trustee questioned them at great length about their PayPal account(s) as well as their Ebay and related activities. Their 341 meeting ended in a continuance with their atty promising to provide detailed documentation of both. In fact, when the trustee asked about PayPal, their atty didn't even know what it was and the couple had to fill him in. The trustee asked me for a year's worth of everything (check registers, bank statements, etc.) and I have no doubt that's what he asked of them, so be forewarned: as soon as this guy heard the words "internet business" the questions started to fly. Include it in your schedules as a bank account, show the current balance, and if he wants to dig deeper he will, but don't try to hide it. Good luck!

[JamesW1]

Thank you for that info.

My business was not an internet business and the PayPal account was never tied to the business account.

[epiphany]

I find it odd that the IRS would tell you not to report it...they constantly scream about eBay users not reporting and I believe the law is that you are supposed to fill out schedule C for profit and loss regardless of if there is a profit. The IRS has also tried to get eBay to turn over the personal information of sellers who conduct over 100 transaction or gross over 5K per year. Ebay won't do it because they claim they not a broker, just a marketplace.

You would have been better off claiming it on your taxes, because you could have written off the original cost of those items. You'd also have your tax return as an accounting for the trustee that would show that you didn't actually make any money.

Good luck,
ep

[JamesW1]

I thought it was odd to hear that from the IRS also. But they said because it was always at a loss that it was not neccessary to fill out a schedule c. I wasn't buying the items to re-sell them. I had purchased them for use originally not for re-sale.

[Flamingo]

The important point about the OP's question is whether or not a Paypal account should be listed when submitting information for filing BK. How the money gets in or out of it doesn't matter cause money in it is available money. As I mentioned in an earlier post, Paypal describes itself as a "custodial" account. When you are asked to provide listings as to accounts you have, you are also asked to detail if you could be the beneficiary of any trust during the course of your filing or if you are the custodian of any bank accounts say for one of your children cause that is money that you can withdraw and is available to you. A Paypal account is along those lines. While not considered a bank account, it is still an account in which one can deposit and withdraw money and is a source for one to utilize funds. FreshLikeADaisy's posting indicates that more and more Trustees are becoming aware of Paypal accounts due to eBay sellers or others trying to hide funds in their accounts and it really doesn't take much to find one since it is always tied to one of your other accounts, either your checking account or maybe one of your credit cards that is involved in the BK filing.

[epiphany]

The important point about the OP's question is whether or not a Paypal account should be listed when submitting information for filing BK. How the money gets in or out of it doesn't matter cause money in it is available money. As I mentioned in an earlier post, Paypal describes itself as a "custodial" account. When you are asked to provide listings as to accounts you have, you are also asked to detail if you could be the beneficiary of any trust during the course of your filing or if you are the custodian of any bank accounts say for one of your children cause that is money that you can withdraw and is available to you. A Paypal account is along those lines. While not considered a bank account, it is still an account in which one can deposit and withdraw money and is a source for one to utilize funds. FreshLikeADaisy's posting indicates that more and more Trustees are becoming aware of Paypal accounts due to eBay sellers or others trying to hide funds in their accounts and it really doesn't take much to find one since it is always tied to one of your other accounts, either your checking account or maybe one of your credit cards that is involved in the BK filing.

I agree Flamingo but was just trying to add some additional information. If there was a profit and loss statement from this activity which showed a loss, then James would not have to worry about any funds funneled through the paypal account as they would be counteracted by the loss.

Actually, paypal describes itself as a "payment processing service". I intend to list mine in my BK because I believe in full disclosure. I am ready to be grilled if need be. All my ducks are in a row.

James, you still could have written those items off, less depreciation if any, regardless of your intent to re-sell.

ep

[Flamingo]

I agree Flamingo but was just trying to add some additional information. If there was a profit and loss statement from this activity which showed a loss, then James would not have to worry about any funds funneled through the paypal account as they would be counteracted by the loss.

Actually, paypal describes itself as a "payment processing service". I intend to list mine in my BK because I believe in full disclosure. I am ready to be grilled if need be. All my ducks are in a row.

James, you still could have written those items off, less depreciation if any, regardless of your intent to re-sell.

ep

Oh I totally agree! There was a huge discussion regarding all this a few months back as to whether or not PayPal was a bank account. If you review the documents online in PayPal and the Legal and other agreements, Paypal indicates it is a custodial account, which, I guess, could be another term for "payment processing service" but "custodial account" is listed in its documents that you have to agree to prior to being granted an account. So that tosses it into the arena of available funds to be reported on BK listings. I agree with you point on full disclosure - better to be safe than sorry.

[diviaruba]

If you opt for the PayPal Money Fund, to earn interest on your PayPal balances, you will receive a 1099-DIV at year-end showing interest earned. This should be reported, along with your other interest and dividend income on your IRS Form 1040 each year. It is one more way that a trustee might locate a "forgotten" PayPal account.

By the way, the 7 day yield on the fund is amongst the highest of the taxable money market fund yields out there.

[tay666]

If you opt for the PayPal Money Fund, to earn interest on your PayPal balances, you will receive a 1099-DIV at year-end showing interest earned. This should be reported, along with your other interest and dividend income on your IRS Form 1040 each year. It is one more way that a trustee might locate a "forgotten" PayPal account.

By the way, the 7 day yield on the fund is amongst the highest of the taxable money market fund yields out there.

That is if you had enough money in your account long enough to earn any kind of interest.

I think for 2007 I earned a total of $2.17 on my PayPal account.
So, no 1099-DIV.

[Flamingo]

That is if you had enough money in your account long enough to earn any kind of interest.

I think for 2007 I earned a total of $2.17 on my PayPal account.
So, no 1099-DIV.

Interest accumulated during the year which is under $10 is not usually reported to the IRS. So to avoid the IRS being notified if you had that particular kind of account accumulating interest over $10.00, one would have to keep interest accruments under $1.00 per month or not have an interest bearing account in the first place.