With Taylor Swift announcing her first tour in 5 years, demand for tickets is sky high. Fans are desperate to see the pop superstar live, leading to rampant scalping of tickets at astronomical prices. This raises an important question – will the IRS go after these ticket scalpers who are making huge profits? Let’s analyze the facts and regulations around ticket resale to determine the likelihood of IRS enforcement.
Swift’s Popularity Drives Ticket Demand
Taylor Swift is one of the most popular musicians in the world, boasting legions of loyal fans. Her recent album releases, hit singles, and increased public profile have made anticipation for her tour reach fever pitch levels. When ticket pre-sales began, sites crashed due to massive demand. Fans reported waiting hours in queues of over 200,000 people for a chance at coveted tickets. Unsurprisingly, most fans walked away empty handed.
This overwhelming demand and extremely limited supply created a perfect environment for scalpers to make massive profits. Those lucky enough to snag tickets immediately resold them on secondary markets like Stubhub and Vivid Seats at prices from $500 to over $10,000 per ticket. These represent enormous markups from the original ticket prices of $49 to $449. Let’s examine exactly how lucrative ticket scalping can be for resellers.
Scalper Profits
Here is an example breakdown of potential scalping profits:
- Original ticket price: $200
- Resale price: $2,000
- Profit per ticket: $1,800
- Total tickets purchased: 10
- Total profit: $18,000
For popular shows, scalpers may purchase hundreds of tickets both individually and in bulk through special deals and industry connections. The total profits can easily reach into the hundreds of thousands of dollars or more.
IRS Tax Implications
These substantial profits from ticket resales present tax complications. Ticket scalping qualifies as earned income and is subject to being taxed as ordinary income according to the IRS. This means scalpers must report their profits when filing their taxes.
If a ticket reseller fails to report their income or substantially underreports it, they are committing tax evasion and subject to audits and penalties. The IRS treats tickets as capital assets, so resellers must also pay capital gains tax on any profits from resale. With the exorbitant markups common in the Swift ticket market, scalpers may owe the IRS a significant percentage of their ticket profit.
IRS Enforcement Capabilities
The critical question remains, what exactly can and will the IRS do to enforce taxes on ticket scalpers? The IRS possesses extensive resources and powers to audit noncompliant taxpayers and penalize them accordingly. Here are some top capabilities the IRS can leverage:
Information Gathering
The IRS has wide latitude to gather information to identify and build cases against tax evaders. This includes:
- Obtaining ticket marketplace transaction records
- Subpoenaing bank and payment accounts
- Investigating online seller accounts
- Accessing reseller business records
With these details, IRS agents can put together a clear financial picture tracing ticket purchases to sales to profits. This creates solid documentation and evidence for audits and tax assessments.
Audits
IRS audits represent perhaps the most feared enforcement power, allowing deep scrutiny of a target’s finances. Possible outcomes of audits include:
- Recalculation of taxes owed
- Charging back taxes
- Levying substantial fines and penalties
- Referral for criminal prosecution
Even if an audit uncovers no wrongdoing, it puts immense stress on the person under review. The IRS performed over 600,000 audits in 2021 covering individual to corporate tax returns.
Collections
When individuals ignore tax bills or deficiency notices, the IRS Collections unit springs into action. They have broad authority to seize assets and garnish wages to settle tax debts. Common collection methods include:
- Levying bank accounts and investment accounts
- Garnishing wages
- Seizing and selling property
- Imposing tax liens
These collection powers pose a major risk to ticket resellers who attempt to hide their profits and dodge taxes owed. A surprise bank account levy could seize ticket earnings without warning.
Tax Avoidance Opportunities
The extensive IRS enforcement capabilities compel ticket brokers to closely consider tax implications. However, opportunities do exist to avoid taxes legally by structuring ticket operations appropriately. Here are some options scalpers could leverage:
Forming an LLC
Creating a formal business entity like an LLC offers several tax advantages. Business expenses become deductible, lowering taxable income. Business losses can offset other income to reduce taxes owed. An LLC also separates business assets from personal assets, protecting personal finances if sued or if IRS Collections comes calling.
Cost Basis Strategies
When reselling tickets at a profit, deducting the original purchase price, or “cost basis”, from the resale amount lowers capital gains tax liability. Savvy resellers maintain thorough cost basis documentation, sometimes even padding this figure with fake expenses to minimize taxable ticket profits. This strategy may be pushed to illegal levels, so caution is required.
Tax Havens
Locating ticket resale businesses in certain states or countries can provide tax benefits. Low or no income tax jurisdictions like Florida, Nevada, Switzerland, and the Cayman Islands offer one avenue. However, the IRS may still investigate and assess taxes on profits earned by a US citizen abroad.
Likely IRS Enforcement
In light of the large profits at stake, what enforcement actions might scalpers see from the IRS? Consider the following likely outcomes:
Increased Audits
A surge of audits on prolific ticket brokers appears inevitable. Red flags like large bank deposits from ticket marketplaces make prime audit targets. The IRS simply cannot ignore such obvious and substantial tax noncompliance. Boosted audit staffing also supports more scalper investigations.
High Penalties
Expect the IRS to seek maximum civil and criminal penalties where major tax evasion is uncovered. Civil fines could total 20% – 75% of unpaid taxes. Criminal tax charges may be pursued in the most egregious cases.
Examples Made
Similar to other forms of illegal income, the IRS probably will focus on making examples of a select group of heavy-hitter scalpers. Publicly punishing high dollar tax dodgers sends a compliance message through the industry. Even chance of audit or charges becomes a deterrent.
Payment Plans
For scalpers with cash flow issues or unable to pay large tax bills immediately, the IRS may permit installment payment plans. This allows deferring payments with interest over several years in exchange for tax returns being properly filed.
Avoiding Small Fish
The IRS likely will not dedicate resources to individually auditing smaller scale scalpers and gig workers making marginal income from ticket resales. The little tax revenue generated does not justify the expense of investigation and enforcement. This offers less protection for volume brokers, however.
Future Crackdowns
Look for the IRS to potentially ramp up ongoing enforcement efforts around ticket resales if initial compliance seems lacking. New regulations tailored specifically to ticket marketplaces may arise as well. Consider offshore havens becoming harder to access as global tax transparency increases also. Any large profits declared from tickets will stay squarely in the IRS crosshairs.
Risk Mitigation Strategies
Given the array of IRS enforcement methods, ticket resellers should adopt measures to mitigate risk. Some suggestions include:
Declare All Income
Obviously, report all ticket sale profits as taxable income to avoid evasion charges. Provides audit defense as well. Retain documentation on holdings periods and cost basis to minimize taxes legally.
Separate Business Finances
Do not commingle ticket sales proceeds with personal accounts. Maintain dedicated business banking and credit accounts. Helps prove the legitimacy of ticket income if audited and avoid seizing personal assets to satisfy tax debts.
Consult a Tax Expert
Engage an accountant or tax attorney familiar with IRS practices, case law, and compliance strategies in the ticket resale industry. They can advise on structuring operations for tax efficiency and managing any enforcement actions that arise. An expert acts as an advocate if audited or charged.
Incorporate in Tax-Friendly Locales
Base ticket reselling entities in no/low tax jurisdictions domestically and internationally. Reduces tax liability but avoid “tax havens” on agency blacklists.
Limit Paper Trail
Where legally possible, conduct ticket transactions via platforms with privacy controls and reduced paperwork. Avoiding easily subpoenaed records minimizes data available if audited. Cryptocurrency payments also provide more anonymity.
Stay Small
Minimize sales volumes to levels that avoid triggering IRS audit red flags and fall under their enforcement radar. This may limit profitability but reduces risk.
Compliance Recommendations
Given the high likelihood of IRS enforcement around Swift tickets, compliance is strongly advisable. Here are some recommendations:
Report All Profits
Meticulously document ticket purchase costs and sales revenues. Report this accurately as taxable income on your 1040 return. Pay all taxes owed on time to avoid penalties and interest charges.
Keep Detailed Records
Maintain evidence validating your cost basis and sales income declared on taxes. Having this documentation readily available provides audit defense and shows good faith compliance efforts.
Consult Tax Expert
Hire an accountant experienced in ticket reseller tax issues to handle reporting properly. An expert manages compliance complexities you may overlook and helps structure operations for tax efficiency.
Inform IRS of Activity
Contact the IRS proactively to inform them you intend to sell tickets and want to comply with any tax obligations. This good faith gesture may discourage excessive enforcement actions. Be truthful if audited and provide requested information.
Avoid Flagrant Evasion
Do not attempt to massively underreport income or other obvious tactics. This will guarantee severe legal reprisals compared to more modest issues that may only warrant civil fines. Pay taxes conservatively if in doubt.
Consider Compliance Resolution
Explore IRS programs offering reduced penalties for voluntarily disclosing past noncompliance. File amended returns if previous taxes were underpaid and make arrangements to pay. Removes the uncertainty of potential future enforcement.
Conclusion
IRS enforcement of taxes on Taylor Swift ticket scalpers appears highly likely given the huge profits at stake. Information reporting requirements imposed on marketplaces like Stubhub will bolster audit targets. While penalties will fall mostly on volume brokers, smaller resellers still face compliance risks. Maintaining meticulous records, declaring all income, and consulting tax experts are advised to avoid trouble. The IRS wants their cut of the lucrative Swift ticket aftermarket. Carefully weigh the financial upside against potential legal exposure from avoidance schemes before diving into this red hot market. In the high stakes game of Swift ticket scalping, the tax man looms as the ultimate adversary.