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. 

I have never received a 1099-k from Paypal yet all my earnings are sent to my Paypal account. So you are saying that your 1099 from the various stock agencies are not enough to show the IRS where your income is coming from? How is a 1099-k different from a regular 1099? Isn't Paypal Considered a Banking Institution?

You don't make more than $20k or have more than 200 transactions through Paypal, so you don't have to worry about it.

I have never received a 1099-k from Paypal yet all my earnings are sent to my Paypal account. So you are saying that your 1099 from the various stock agencies are not enough to show the IRS where your income is coming from? How is a 1099-k different from a regular 1099? Isn't Paypal Considered a Banking Institution?

Maybe the solution is to just submit the 1099K and not your other 1099's or start having the stock agencies mail you a check to cancel out Paypal as the Third Party?

Yes, they do see Paypal as a financial/banking institution.  I'm using every other payment method now to cancel out having to deal with this 1099-K paypal fiasco.  That's really the only workaround I can see, and I even told the IRS I would have to resort to that in order to avoid this oversight. 

But I still have to file my 2014 return... and I don't want to have to explain this situation to the IRS for the third year in a row.  I'll post here when I figure out a solution, unless someone else has also already dealt with it.

This has been discussed extensively in a thread last year. Pete even wrote IRS about it and got an answer. I need to dig it up.

This one http://www.microstockgroup.com/shutterstock-com/irs-1099-k-answer/

and here is one http://www.microstockgroup.com/general-stock-discussion/anyone-receive-their-1099-k-from-paypal-yet/

And this one  http://www.microstockgroup.com/general-stock-discussion/paypal-1099s-coming-back-to-haunt-us/

If you type Uncle Pete 1099-K in Google, you will find a lot of stuff 

Thanks Semmick.  Yeah - I'm the guy embermike was talking about.  And I settled it, no questions asked... because the IRS is reasonable.  They are on your side when you show them proof that you are not trying to evade your taxes.  Especially for someone like me who pays their quarterly taxes like clockwork.  It still cost me about $20 in copies, postage, tracking, a week's worth of stress and distraction (all while I was entertaining house guests from out of state) so I really don't want to have to deal with this a third time.  Maybe I'm the only one here getting a 1099-K from paypal, who hasn't included it on their taxes and received a CP2000 notice twice now.  I guess I need to pay a CPA hourly to get their advice, as I file my 2014. 

I know what I need to do in order to prove that I don't owe them any more money for the 2013 tax year.  What I did (if it helps anyone else here) was I printed every month's worth of paypal statements, highlighted the 1099ed agency payments, numbered them, coded the numbers according to a spreadsheet that I made, and highlighted the totals.  I probably went above and beyond, but I wanted to make it sure-fire and simple for them to understand this bowl of spaghetti.  Since I have to do this all over again, I might just highlight the amounts and let them do the data-entry into their calculators.  I'll call customer service once more and see if I can avoid doing this, but I highly doubt they will just clear me over the phone.  At the least, maybe they can advise me as to how to file, or reduce my gross by the amount in the 1099-K (if there even is an area of the forms, or special tax form for this).

Just one thing, which seems to get misquoted: (or lost in the discussions)

$20,000 AND 200 transactions. That's not either / or.

I report 100% of my earnings, haven't stepped into the 1099-K even with the eBay sales, business and Microstock, because I don't make 200 transactions a year. I suppose some day I will? But since I already report everything, I'll be in the same place as Todd, getting a note from the IRS, asking why I didn't report, what I did report, even though they know about it.

If someone is mailing the forms out after January 31st, they are not following the law. When you receive it might be delayed, but 1099s must be processed before February 1st. IRS regulations.

Might as well add that someone mentioned agencies in some other country, not issuing a a 1099. I don't believe they are required to. They aren't in the US? Unless the tax treaty says they must? I asked one agency and they said, they aren't required to do that. I don't know?

I hire an accountant, what I pay her, is less than what I save from her knowledge of the laws. I tested by using Turbo-Tax one year, and found I would have paid much more doing it myself. That closed the deal forever. I pay someone...

Anyone who wants, can take their taxes to H&R Block for free and have them reviewed. Meaning say you use software or do them yourself. You can still go in and ask for a free review.  No my accountant isn't one of those people, she's full time, all year long and smarter.

Good one Todd, Schedule C - �Duplicate 1099 Income.�

I'm going through this myself and as you mentioned they really should have a button when filing your MISC 1099 that says it was paid out via PayPal.

"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."