THE IRS HAS TAKEN MY TRANSACTIONS VIA PAYPAL AND IDENTIFIED THEM AS TAXABLE INCOME

Not sure of your point.   Did you make money buying and selling equipment here and on Audiomart?  If so, it's income.  You don't have to fight the IRS; just tell them the truth, pay up, and move on.  They'll be very accommodating. 

( If you 'lost' money, like most of us have [e.g., you spent money on equipment, which you own, or sold it at a loss], then it's a hobby, and those losses are of course not deductible. )

In order for the IRS to know about these transactions PayPal has to tell them, otherwise it's the honor system and the IRS expects you to report the income. According to PayPal guidelines they are required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year. PayPal would also send you a 1099-K in this case. You can also check your PayPal account to see if the 1099-K was issued.

The $20,000 is easy to hit when you're selling audio equipment, but 200 transactions not so much. regardless, if the IRS has contacted you then it's generally best to work with them and not against them.

Render unto Caesar.

Stop talking about it here, and hire a good "tax guy". If you profited on those sales, you'll owe some additional taxes.

Clio09 is spot on. You must hit 200 Transactions and 20K. If you sold 2 pieces on Audio Mart/Audiogon etc and 198 on EBAY thru Paypal and grossed 20K your screwed. Worst is they will require paperwork showing every sale and the +/- dollar value on each.  Saw it happen to the guy in front of me at H+R Block when getting my taxes done last year. He looked like somebody ran over his dog when they told him the news.