With recent changes to 26 U.S. Code § 6050W lowering the threshold for transaction reporting requirements from $20,000 to $600 for third-party settlement organizations, auctioneers rightly questioned if they were considered “third-party settlement organizations?”
The National Auctioneers Association posed a question to a United States Congress member who took the question to the IRS Office of Chief Counsel, currently headed by William M. Paul, Principal Deputy Chief Counsel and Deputy Chief Counsel (Technical), and Drita Tonuzi, Deputy Chief Counsel (Operations.)
The particular question posed was this: “Would an auction company, operating online, with whom sellers do not establish escrow accounts, are unrelated to the sellers, who have agreements regarding payments to sellers, be considered a Third-party Settlement organization under IRS tax code, be obligated to report payments to the IRS and issue a 1099k?”
The Chief Counsel’s office responded here:
…(w)e would tend to think that the auction firm is not a Third Party Settlement Organization with a reporting obligation under section 6050W of the Internal Revenue Code.
I would offer that for live auctions (live auctioneers) who — along with online auctioneers — often do escrow funds on behalf of sellers and could be related to the seller … if a somewhat typical online auction company isn’t a third-party settlement organization, then it doesn’t appear typical live auction companies (live auctioneers) are either.
Our analysis — along with many others’ thoughts — otherwise focused on auctioneers who aren’t usually “third-party” principals in a typical auctioneer/seller transaction. Auctioneers contract with sellers and usually collect the money (escrowed) with net proceeds directed to the client, and as such, there are basically only two parties.
A “third-party” is more a credit card processor or an online platform itself, that processes credit/debit cards for the auctioneer and seller, assisting in their (and other) transactions. As such, they would literally be a “third-party” involved in this service offering, and thus likely affected by this new reporting requirement.
I suspect there are indeed some auctioneers acting in “third-party” roles who may be responsible for these new requirements. Of course, as with all tax questions, you are encouraged to consult with your own tax professional to specifically determine your own status and obligations.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at Mike Brandly, Auctioneer, Brandly Real Estate & Auction, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.