I just logged into PayPal and this is what it says:
Starting in 2011, all US payment providers including PayPal will be required by the Internal Revenue Service (IRS) to report sales information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal. We want to help you understand these changes.
Applies to sellers receiving over $20,000 in gross payment volume AND over 200 payments
Applies only for sales on or after January 1, 2011
Questions? Login to your account or call 1-888-221-1161