Ticket Scalping: Uncovering Tax Implications for Resellers

by Reagan Hanna, Associate Member, University of Cincinnati Law Review Vol. 92

I. Introduction

In early 2021, President Biden announced the American Rescue Plan Act (the “ARPA”) in response to the looming COVID-19 Pandemic and continuing economic crisis.¹ Implementing the ARPA was intended to support struggling communities, the American economy, small businesses, stop the spread of Covid-19, and much more.² One particular focus of the ARPA that sparked both interest and confusion for many Americans, was the significant change in the reporting threshold level for taxable income.³

Previously, the reporting threshold of income required for Form 1099-K, Payment Card and Third-Party Network Transactions only applied to a payee who grossed over $20,000 after 200 transactions.⁴ Only then after exceeding that threshold would reporting on a 1099-K form be required.⁵ However, with the implementation of the ARPA, the threshold drops significantly to merely $600 and no specification on how many transactions may comprise that limit.⁶

Originally, the decrease in the minimum reporting threshold was to take effect and apply to transactions beginning on January 1, 2022 and apply to the 2022 tax reporting year.⁷ However, the Internal Revenue Service (the “IRS”) issued a notice to delay the implementation to ensure that third party settlement organizations (the “TPSOs”) and participating payees understand exactly how they could be effected and prepare for compliance with the income tax reporting.⁸ According to the IRS, the delay should be regarded as a transition period for the implementation of the plan for the 2023 fiscal year.⁹

Currently, an emerging issue with this significantly lower threshold concerns the sale and profits from event tickets such as sporting events and concerts.¹⁰ For example, big events in 2023 like Taylor Swift’s Eras Tour, Beyonce’s Renaissance Tour, and Inter Miami CF tickets were hot commodities on the resale market boasting large profits for sellers.¹¹ However, now that the IRS rule delay is over, those who resold tickets and made a profit over the $600 threshold are required to report that income on their taxes, and websites like Ticketmaster that facilitate those sales are obligated themselves to report as well.¹²

This article explores the real-world implications of the new IRS rule on event ticket sales and the requirement to maintain compliance with the rule. Part II provides more background on the 1099-K reporting requirement with the new IRS Rule, who may be subject to the rule, and obligations of the parties involved. Part III discusses how the implementation of this law both positively and negatively impacts ticketless fans, sellers, resellers, and TPSOs. Additionally, the possible penalties and general impacts of this law are discussed. Finally, Part IV concludes by focusing on the potential downfalls that could happen without implementation of this law and the true effect on the ticket industry.

II. Background

Under the Internal Revenue Code, a payment settlement entity such as a TPSO must issue tax forms for each participating payee and their corresponding gross amount of reportable payment transactions.¹³ A TPSO is, “the central organization that has the contractual obligation to make payments to participating payees of third-party network transactions.”¹⁴ Following, a participating payee is the person receiving and accepting the payment from the TPSO.¹⁵ Therefore, under the new IRS rule, a 1099-K tax form must be filed each year if a participating payee receives, in the aggregate, payment via payment cards or payments over the new $600 threshold.¹⁶

This rule applies to goods and services you may buy or sell over these platforms like a TPSO. The most common TPSO is an online payment facilitator acting as the intermediary to facilitate a transaction between buyer and seller and transfers the funds between the two.¹⁷ For payments in settlement of third party network transactions, the TPSO is required to report those payments that exceed $600 for any participating payee.¹⁸ If a TPSO does not file or furnish 1099-K forms, then it may incur penalties.¹⁹ Requiring the TPSO to report this income holds the participating payees accountable, verifies that what they are individually reporting is accurate, and identifies individuals who did not file on their own.²⁰ Finally, this law is thought to increase voluntary tax compliance and improve IRS performance.²¹

Additionally, there are some transactions where payment is sent and received through a TPSO that do not require the same reporting obligation.²² Among other things, a TPSO does not have an obligation to report to the IRS profitable transactions for personal and holiday gifts, or reimbursement for payments like splitting a check or paying a friend back for something like a car ride.²³

A few well known TPSOs include payment applications such as Venmo, PayPal, and Cash App. These platforms are commonly used to facilitate the payments for goods and services over $600 and are subject to IRS tax codes.²⁴ Similarly, another type of TPSO involves the sale of event tickets such as a sporting event or concert.²⁵ These types of TPSOs include event ticket websites like Ticketmaster and StubHub.²⁶ Ticketmaster, among others, partners with event organizers to sell tickets to events.²⁷ Fans that secure tickets may have the opportunity to resell their ticket or extra tickets through the actual Ticketmaster website.²⁸ If not on Ticketmaster, resellers have other TPSO options to resell their tickets.

These TPSO platforms will be the ones to issue the 1099-K to those participating payees.²⁹ Ticketmaster refers to those who utilize their site to resell tickets as fans.³⁰. Ticketmaster is obligated to provide a copy of Form 1099-K to fans and they should receive it by January 31 of the following calendar year.³¹ Additionally, for participating payees that gross over $600 in the aggregate between multiple accounts, Ticketmaster will issue separate tax documents for each account regardless if each account alone does not reach $600.³²

According to Ticketmaster, states in the U.S. may require reporting on any earnings depending on each states requirement, even if it differs from the federal requirement.³³ Incidentally, to comply with this federal law, Ticketmaster must collect personally identifiable information from each person that sells tickets on their website.³⁴ The information legally required to produce the 1099-K forms include the seller’s legal name, address, phone number, and Tax Identification Number.³⁵

However, it is the responsibility of the participating payee to ensure the 1099-K is filed with their taxes.³⁶ If a person resells tickets and nets a profit over $600, this triggers a duty to report on a 1099-K tax form.³⁷ Furthermore, failing to report this income may result in penalties from the IRS. Regardless, the Secretary is the one who may prescribe regulations and guidance to carry out the law pertaining to these reportable payment transactions.

III. Discussion

Because a primary goal of the ARPA was to use this tax provision as a revenue-generating measure, this may create an unfortunate impact on sellers expecting to make some extra cash off ticket scalping.³⁸ This part discusses the realistic application of this new IRS law on the fans and prospective resale ticket buyers, participating payees, TPSOs, and under-the-table ticket transactions.

A. Impact on Fans and Prospective Resale Ticket Buyers

One of the most popular and talked about events throughout 2023 has been Taylor Swift’s Eras Tour. Tickets to the Eras Tour seemed to be few and far between. An unprecedented number of fans were eager to attend the stadium world tour. However, the number of fans fighting for tickets greatly surpassed the allotted tickets available when the tickets went on sale. Only a limited number of fans were able to secure codes to have a chance at getting tickets. Therefore, after the tour began and the hype around the tour continued to skyrocket, it is likely many people realized how much additional profit they could make from reselling their tickets or any extra tickets that they were able to purchase. While there has always been a market for reselling event tickets, the resale markets through TPSOs are largely dependent on the current market, and in the case of the Eras Tour, demand was very high.³⁹

On average, a face value ticket to attend the Eras Tour ranged between $50 and $500, depending on the location of the seats and package prices. However, on the resale market, the average price of a ticket was well over $2,000 each. These resale tickets were and are still currently being sold through TPSO’s like Ticketmaster and Stubhub.

Many tickets fell into the hands of those knowing they could make a large profit, rather than true fans who would do anything to go. However, now that the new IRS rule is in place for 2023 tax filings, resellers may want to rethink that plan. Each individual participating payee that decides to resell tickets through a platform like Ticketmaster and exceeds that $600 limit is subject to this rule.⁴⁰ The gross transactional amount equals the total amount of all sales throughout an entire calendar year.⁴¹ Therefore, regardless if a participating payee sells one ticket and profits over $600 or even multiple sets of tickets, if the combined sales for all of the ticket sales gross over $600, then this rule applies.⁴² The price that tickets are sold for, plus any fees and related charges to the ticket sale, all get taken into account when calculating the gross amount of the threshold.⁴³

Subsequently, this new rule from the IRS could be a good thing for true fans. Ticketless fans wanting to purchase tickets and experience events like the Eras Tour may have a better chance if participating payees are less inclined to take the tax hit. The lower threshold could discourage sellers from wanting to resell tickets at a significantly higher price and for a profit exceeding $600. Paying extra taxes may be a significant consequence to some resellers or participating payees and may be enough to deter them from reselling to make a profit over $600.

B. Impact on Participating Payees

Alternatively, while this may be of no consequence to some payees, it might be enough to hinder the high prices of resale tickets. Even so, there might still be some sellers who were able to purchase cheaper tickets to events, and though smaller, a profit less than the new $600 threshold.

A reseller, in many instances, buys certain event tickets like sporting and concert tickets purely to resell them at a much higher price to make a profit. Those types of resellers will likely have a problem with the new rule this year. Previously, if the ticket seller did not gross over $20,000 between 200 transactions, there was no obligation to report any of that additional income to the government. For those able to do this as a hobby and make extra money, they must make a choice and decide whether the extra income is worth and makes up for what they will eventually owe the government in taxes. Participating payees may receive a 1099-K form for reselling tickets but they will only be taxed if the income surpasses $600.⁴⁴ Therefore, those with extra tickets looking to sell their ticket ought to be careful not to pass the new threshold or they must report that income to the IRS.

C. Impact on Third-Party Settlement Organizations

Alternatively, it does not seem like this new law effects a TPSO as the middleman in the transactions all too much. The TPSO’s are responsible for making sure the 1099-K Forms are issued for participating payees and from that point, it is the responsibility of the payee to report that income to the IRS.⁴⁵ In order to secure personal information from participating payees, most sites like Ticketmaster ensure that personal information needed for tax purposes is given before payment is disbursed back to the participating payees.⁴⁶ Otherwise, situations could arise where the TPSO is unable to get the necessary information to issue a 1099-K and have an incomplete record of who is responsible for the taxes on that qualified income.

D. Under-the-Table Ticket Sales

Lastly, there is the possibility that event tickets, like certain goods and services could be sold to others under-the-table. A seller and potential buyer may know each other personally and may want to purchase event tickets in person with cash. Theoretically, under-the-table transactions happen all the time pertaining to a multitude of goods and services and could happen with event tickets as well. However, this situation largely depends on the likelihood that someone would scam or sell tickets significantly over the $600 threshold to someone they know, but it is something to think about. Even so, if this was happening, there would not be a TPSO in place to hold the payee legally accountable. Therefore, it seems highly unlikely that if a seller made a profit over $600 without the use of a TPSO, that the income would be reported to the government on a Form 1099-K like this new IRS rule was intended to cover.

IV. Conclusion

The implementation of this new law through the ARPA was intended to be a part of a much bigger government plan. Overall, a primary focus of the ARPA is to increase federal capital after the economic crisis that developed as a result of the COVID-19 Pandemic.⁴⁷ By decreasing the level of taxable income required to trigger the new law, the government essentially seeks to pull more people above the low $600 threshold through transactions for goods and services. By doing so, this allows the IRS to require a 1099-K tax form to be filed for each person above this threshold and enables the taxation of that income. Essentially, this new law enables the government to tax more people and create more revenue, especially when it comes to ticket sales.

With the increase in interest in popular concerts and sporting events, the price of tickets on the resale market have skyrocketed astronomically. Before this new law was put into effect, a seller would have been able to resell a pair of tickets to Taylor Swift’s Eras Tour and make a profit of well over a few thousand dollars without any tax implications. However, if ticketholders were unable to resell tickets before the turn into 2023, they will have to report that income and pay taxes whether they knew about the rule or not. Since the effective date of the rule was pushed back from its original start date, Americans have had a year to understand the consequences of this law.

The threshold seems very low compared to the previous $20,000 floor on reportable income. A middle ground somewhere between $20,000 and $600 may be more beneficial in the long run; however, currently the U.S. economy needs as many ways to bounce back as possible, and if one of the only drawbacks is that sellers of tickets will be taxed for overpricing and scalping tickets, then so be it.

Although this law applies to all goods and services, the hope is this law changes the ticket industry for the better. While the goal is to create revenue for the country, why not try and stop those abusing the ticket industry and using TPSOs to do so. Primarily, the benefit from this new law is two-fold. First, the law allows the IRS to boost the economy through taxation of more income. Second, it may have a deterrent effect to reduce resale ticket values. Consequently, it could allow for more opportunity for fans to attend and participate in events they love and support, rather than ticket scalpers reaping the benefits.

Cover Photo by Kelly Silkema on Unsplash

Reagan Hanna

As a Double Bearcat, Reagan Hanna attended the University of Cincinnati for undergrad, receiving her Bachelor's degree in Criminal Justice, a minor in Paralegal Studies, and a Certificate in Crime and Intelligence Analysis. Reagan is most interested in Corporate, Sports, and Intellectual Property law. Outside of law school, Reagan enjoys watching Cincinnati sports, working out, skiing, and spending time outside.

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