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

Viridian,That was funny as hell!

I'm meeting an IRS rep on Wednesday morning in Providence!

You would only owe tax in excess of your cost basis.  If your the average person that bought a new piece of equipment and sold it a couple years later for less than what you paid for it originally then you owe nothing because there is no taxable income.  What your saying would only apply to people or businesses that buy and sell used gear for a profit.

It depends on size, substance and intention.
Did you buy the items that you sold just to sell them?
Or did you just sell off a few items you had upgraded?

If the former then it's a business.
If you are doing that then make sure you claim the losses on the items you bought new and used in your system before selling them at a loss.
Others have said such losses are not allowable but if you are already carrying on a taxable business IRS cannot have it both ways.  Make sure they pay their pound of flesh.

What if the OP does not have receipts for some of his original purchases? How does he then establish the cost basis, especially if he bought the gear many years ago?  Is the IRS likely to accept reasonable, good faith estimates that indicate the original purchase prices were higher than the sale prices?