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Tickets, Please: New IRS Rules Stifle Scalpers

By A.J. Firstman | Last updated on

The kids call it "scalping."

It's one of those names that really conveys how people feel about the practice. In theory, scalping is a perfectly rational, economically efficient thing to do. Just like those people who bought up all the toilet paper early in the pandemic and tried to resell it for a much higher price (the word "try" here is important. States do have laws against price-gouging). But economic theory holds that the "correct" price for any good or service is exactly the price at which a buyer is willing to buy and a seller is willing to sell. It's true for food. It's true for stocks. It's true for iPhones, and, yes, it's true for Taylor Swift tickets, too.

Granted, if you ask around about scalping you'll hear plenty of grumbling and some minor gripes – gripes like "It sucks and I hate it" and "No, really, stop it before someone smacks you."

If you count yourself among the category of folks who watch in despair as hot tickets sell out instantly and then double and triple in price on the secondary market, there may be some good news coming your way.

The American Rescue Plan

The American Rescue Plan was a massive piece of legislation that was passed in 2021 under President Joe Biden. The Plan was big and broad, and did a lot of stuff intended to improve the economy during the pandemic. We don't have time to dig into everything included in the Plan, so let's focus on just one provision that amended Section 6050W(e) of the tax code.

To quote the endlessly fascinating IRS … nah, just kidding. We know your eyes started glazing over the second you read the words "tax code." Even CPAs and tax lawyers wouldn't read a document called "Revised Timeline Regarding Implementation of Amended Section 6050W(e), Notice 2023-10" unless they have to. Here's the upshot:

As of 2023, anyone who makes more than $600 on digital transactions — like buying and selling tickets at a profit — will have to report that income to the IRS via Form 1099-K. It's actually kind of a big deal.

There's a lot of jargon and confusing language surrounding the changes, but the desired outcome is fairly straightforward. In the years before the ARP's changes were implemented, the relevant provisions stated that any income from payment card transactions and (online) third-party network transactions must be reported on a 1099-K — IF the individual in question earned money from over 200 transactions over a year or if the overall dollar amount exceeded $20,000.

Why yes, that did make it very easy to hide up to $19,999 in income from the IRS. That's going to be a little harder now that the limit has dropped to $600.

You Can Still Venmo Friends

There has been some worry that this $600 limit will affect anyone who regularly goes halfsies on a pizza order with a friend using Venmo. That's not what the IRS is concerned about. The 1099-K requirement is for profits on goods and services sold digitally. Selling your used couch on Facebook marketplace doesn't typically generate a profit. And ideally you won't be making a profit off of your friends who are just trying to pay you back for dinner.

So What?

Okay, so scalpers having to pay taxes on a lot more of their ill-gotten gains doesn't sound like that big a deal. We're all supposed to pay taxes anyway, right? How is this change to the tax code supposed to stop scalpers from ensuring that only the wealthy get to go see cool plays and concerts and stuff?

Once again, economics has the answer — and it probably won't even make you angry this time.

It all comes down to profit motive. Scalpers do their thing because they want to make money and because their parents never loved them, right? Well, there's a threshold for every one of them where they'll say: "You know what? This isn't worth the money. I'm going to go do something more useful to society like be a pet psychic or freelance elevator operator."

These changes to the tax code probably won't solve the scalping problem altogether, but every little bit helps. And if you're wondering why scalpers would bother reporting their income, two words: Paper trail. If they use any "reputable" website or marketplace to buy and sell tickets, the website will be forced to track their transactions and issue the scalpers 1099-Ks themselves.

Yes, scalpers could technically make their own marketplace, but they wouldn't be scalpers if they knew how to make things, would they?

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