First, there is no government requirement for Paypal or anyone else to collect this information from every user - only for those who exceed the dollar and/or transaction amounts that would trigger a 1099. The fact that you would be chasing down individual users when they exceed these amounts is far less of a burden than requiring the dominant share of your users to submit sensitive tax ID information when it is not necessary and threatening them with restrictions on their accounts for "non-compliance". Second, the issue of potential duplicate issuance of a 1099 per my example is most certainly a Paypal problem if you choose to do this a a third party pass-through and not the actual payer as is the case with Stubhub or even your sister company eBay. The repercussions of this are not trivial and Paypal should be doing more to identify these potential risks and prevent this from occurring. You have had enough bad press already - do you really want to deal with the ramifications of issuing duplicate 1099's for these payers? This is not at all a "tax professional" issue - it's yours if you fail to prevent it...
