Yes. you can calculate your cost basis for the items you sell, but who keeps the receipt to show how much they originally paid for that bike they bought 25 years ago, and who wants to go through the hassle of the book keeping for such sales? That item you bought at the yard sale for $100 cash and sold on ebay for $200. Do you have a receipt for the $100? If not the IRS says you pay tax on the full $200 since if you get audited and you can't produce a receipt, you can't claim the proper cost basis.

I quit selling on ebay back in February because I was very close to the $600 limit and I'm not dealing with a K-1 come tax time.

And, as far as that letter is concerned, ebay is the one with the deep pockets. Perhaps they need to do some good old political lobbying instead of leaning on their customers for help. Ebay has deteriorated every year over the last decade and I don't really care what happens to them at this point.