John Legoski, 2021 T. C. Sum. Op. 15, filed 5/26/21, thought the $29K he got from Amazon was below the threshold for reporting payment card and third-party network payments. The 1099-k he got from Amazon Payments should have awakened him, but it didn’t, at least to the extent of reporting the $29K on his 1040-A.

John didn’t. No problem, AUR picked it up, and, untouched by human hands, gave John a SNOD for the tax on the $29K unreported income, plus a Section 6662 five-and-ten chop at no extra charge.

John ran a part-time dropship routine. One of my colleagues long ago had a similar game, with bicycles. Judge Pugh explains for the year at issue.

“…petitioner bought and sold items online, using a drop-shipping model in which he would purchase an item from a third party such as Walmart or Home Depot or through the online sales and auction website http://www.eBay.com, sell the item online on Amazon, and then arrange for the item to be shipped directly to the buyer. He would pay for the items through the online payment service PayPal. When a customer purchased an item from petitioner, Amazon Payments, Inc. (Amazon Payments), would receive the payment, deduct its fee, and then remit the remainder to him.” 2021 T. C. Memo. 15, at p. 3.

This phenomenon may explain the sudden proliferation of online apps, which claim to find the lowest price for items offered on these various sites, cutting out the dropshipper-arbitrageur.

Howbeit, whether or not Amazon Payments had to report John’s payout, they did. John was put wise on the trial, and caved.

John wanted to claim COGS. After all, Amazon paid him gross; he didn’t get the goods he dropshipped for nothing.

Except.

John hasn’t a scrap of paper to show what he bought and what he sold. The Michael Corleone Gambit won’t get you a Cohan.

John claims he lost money in the year at issue on the dropshipping. But no proof, no loss.