This Paypal 1099-K stuff is a huge hassle for USA microstock contributors.  Ah, the joys of self-employment.  Please do yourself a favor a read my long-winded story below, if you've earned enough via Paypal to receive a 1099-K. 

For 2012 I got a CP2000 from the IRS (basically feels like an audit / discrepancy) because I left the 1099-K off.  I report my income honestly, to the penny... and as the 1099-ed income and misc income that I report comes to the same exact amount as my 1099-K from Paypal, I haven't been reporting the 1099-K on my return.  That's probably my mistake.  I filed 2012 this way, and 2013.  If I just add it into my tax return along with all of my other 1099-MISC forms, it basically double reports my income.  I don't know about you, but self employement taxes are bad enough!!  Nobody should have to pay double taxes.  It's a little un-nerving opening a "bill" from the IRS, showing that you owe them 5 figs of extra income INCLUDING thousands of dollars extra in fees and penalties, for a specific tax year (when you know you've paid every red cent, on time quarterly). 

I have settled the 2012 "misunderstanding" by sending in many hours worth of proof, showing the IRS that the income I have reported on my 1099-MISC forms is the same as on the 1099-K paypal report.  I probably spent a week working on all my documents, making copies, extra money on copies and shipping with tracking.  They sent me a new statement going from me owing them a huge 5 figure amount, down to $0.00. Boom.  Success.  I also included in my explanation a simple statement, please don't send me a CP2000 notice for 2013's return, as I have filed it the same way.  Well, let's just say I have to now go through this entire hassle again for 2013's return.  Partly my fault, I guess, but there's no way my tax software allows me to "ignore" double reported income from 1099's.  So, I have just been leaving it out, ever since the 1099-K paypal thing began (back in 2010 or 2011).

This overlapping stuff is a nightmare.  Has anyone else had to deal with this, or found any solutions?  I'm about to button up my 2014 return soon, and I guess I will be including a huge attachment somehow with my return to explain why I'm not including the 1099-K.  Either that, or I'll be talking to a local accountant soon to see how to include it.  If you just enter everything into your tax forms, you will end up double-paying your taxes. 

All of this would be a piece of cake, if the IRS would just included a box on the 1099-MISC form for people to check off, so that if they are ALSO sending the payment via Paypal.  That way, the amount would be deducted from the total 1099-K amount on the tax forms.  Very simple solution, but it's also a rare circumstance to have 1099ed income being reported to the IRS twice.  I've even suggested a new solution in my letter, but have not received a reply other than the "zero balance due" letter.  For 2015 and onward, I think I'm done dealing with paypal.  I can't afford to spend all this extra time proving to the IRS that I'm not hiding imaginary income from them.  If we can split up our income between multiple payment methods, the 1099-K form should not interfere with our normal 1099-MISC forms.

I may try one more time to call them up and see if I can get any further advice.  The last time I did, it seemed like I was talking to India.  I think even the IRS is outsourcing their call centers now.  She was helpful, but very short with me.  She said "Just send us the proof and this will all go away."  So, I did... but I don't want to have to keep going through this. 

Has anyone else not been reporting their 1099-K due to overlap If so, get ready for some "fun" with a potential CP2000 notice.  I've googled this issue, and it's such a rare thing that I'm having a rough time finding a rock-solid solution to filing it.