Correct Presentation On Tax Return (1040)

[RAE1978EA]

My client is a physician. He is employed by a medical clinic (W2 issued). In some cases, the Medical Clinic is using my client's Provider # when billing for State of California-MediCal reimbursement. Medi-Cal issues the check(s) (Warrant) to him, he endorses the check(s) to the Clinic. My client has been told that this is a common practice.
As of today, he has not received a 1099 MISC from MediCal; a staff member of the Clinic has contacted MediCal and requested they send the form to him. She told us today that they (MediCal) is in the process of sending a second copy of the 1099MISC to him, at the Clinic. They will be reporting amounts paid to him during 2008 as either Medical & Health Care Payments (box 6) or NEC. We are not sure, at this time which they will do. The amount is approximately $65,000.
My client has prepared and mailed timely, a 1099MISC to the clinic, showing him as the Nominee Payor and the clinic as the recipient. He entered the amount in box 6. We understand that this may have to be corrected, but did not want to be delinquent in filing the 1099MISC.

My client's AGI (without this above item) is approximately $200,000+
Schedule A is approximately $70,000 before adding the $65,000 Nominee payor amount. .
As indicated above, he is affected by AMT

Question 1- I have been told that the amount reported to the IRS as paid to him by MediCal should be reported on line 21, page 1 of the 1040. He is to identify the income as "Nominee Income". Is this correct?
Question 2. Where on the return should he report the amount paid by him as Nominee payor and the clinic as the recipient?
I have been given several options:
Option A- enter as a negative on line 21..This would then show line 21 as
0(Zero) with an explanaition.
There would be two entries for line 21, page 1 of form 1040.
entry #1: report the MediCal 1099MISC.
entry #2: report, as a negative #, the 1099MISC reported as paid by him (Nominee Payor)

Option B- enter on Schedule A- line 28 "other Misc. deductions" not limited by 2% of AGI. Wouldn't this be a "bell-ringer" since Misc. deductions and especially other Misc. deductions would be a big number?

Option C-. Report the MediCal payments on line 21, transfer the amount to Schedule C and then enter the Nominee Payor amount as an expense on Schedule C. This would yield Zero Schedule C income..

I would appreciate all opinions/recommendations. .
Thank you
RAE1978EA

[ChEAr$]

Use the KISS principle

Easiest way is report it on the schedule c and with an offsetting expense item for the
nominee amount included in total receipts.

It's a wash.

Ah, which means it's a "clean" way of doing it also! (grin)

[Snaggletooth]

Agree with ChEAr$

RAE1978EA, welcome to the board with your first post and a good question.

I ran into a similar situation with an optometrist. The doctor had signed a contract with a huge medical provider, and consented to certain transactions being credited and charged to a controlled bank account.

I was told that the arrangement is widespread in the medical industry, and exists to end any speculation that the doctor could ever be an employee.

The optometrist had about $360,000 in revenue flowing through the account, and some $220,000 in expenses, including clinic fees, insurance, legal, drugs, supplies, and any other expenses. Optometrist netted out with a nifty $140,000, but had to keep a reserve in the account equal to 10% of annual revenue. Doctor thus could not access $36,000, but that is a one-time hit.

The essence of this means that the doctor is subject to his own operating expenses, and his own risk. Additionally, the provider and the bank account was headquartered in another state, and that ends any speculation that the provider was standing over the eye doctor telling him what to do.

All of the above elements are essential in the employee-independent contractor argument.

As Harlan said, report all the "ins" and "outs" on Schedule C, and avoid questionable reporting such as "nominees." Reporting this way will also enhance the argument against employee treatment.

[RAE1978EA]

Response to ChEAr$

Easiest way is report it on the schedule c and with an offsetting expense item for the
nominee amount included in total receipts.

It's a wash.

Ah, which means it's a "clean" way of doing it also! (grin)

Thanks. I can see where it is the Easiest way to report the Nominee Income. I assume you think it will be "cleaner" than reporting it on page 1, line 21of the 1099 and then reversing it out.???

Will "eyebrows be raised by the IRS" when a schedule C is prepared yielding a net income of -0-( Zero).?
What would be the correct wording for the Expense?? Nominee Payor ??

Fact: The Clinic prepared a letter for my client to attach to his tax returns stating all of the income is being reported on the Clinic's tax returns and that my client has no claim to any of the funds, etc.
Question a-: should the letter be attached to my clients federal and state income tax returns?
Question b- If the letter is attached to the returns, can my client still E-file or must he file manually?

[RAE1978EA]

Reply to ChEAr$

[QUOTE=RAE1978EA;76143]Thanks. I can see where it is the Easiest way to report the Nominee Income. I assume you think it will be "cleaner" than reporting it on page 1, line 21of the 1099 and then reversing it out.???

Will "eyebrows be raised by the IRS" when a schedule C is prepared yielding a net income of -0-( Zero).?
What would be the correct wording for the Expense?? Nominee Payor ??

Fact: The Clinic prepared a letter for my client to attach to his tax returns stating all of the income is being reported on the Clinic's tax returns and that my client has no claim to any of the funds, etc.
Question a-: should the letter be attached to my clients federal and state income tax returns?
Question b- If the letter is attached to the returns, can my client still E-file or must he file manually?[REPLY/QUOTE]

[RAE1978EA]

Response to Snaggletooth

Thanks for your response.
My client is definitely an employee of the Clinic. Neither the Clinic or my Client claims to be an independent contractor. He has several employee benefits, participates in the clinic's 403B plan, etc.

Please refer to my additional questions to ChEAr$.
I would appreciate your input as well as "ChEAr$'s"
One of my concerns is that a Schedule C with just two line items- Gross Income $65000 and Expenses...Nominee Payor... $65,000 yielding a Zero net income will be an IRS audit issue.

[RAE1978EA]

[Reply/QUOTE=RAE1978EA;76157]Thanks for your response.
My client is definitely an employee of the Clinic. Neither the Clinic or my Client claims to be an independent contractor. He has several employee benefits, participates in the clinic's 403B plan, etc.

Please refer to my additional questions to ChEAr$.
I would appreciate your input as well as "ChEAr$'s"
One of my concerns is that a Schedule C with just two line items- Gross Income $65000 and Expenses...Nominee Payor... $65,000 yielding a Zero net income will be an IRS audit issue.[/QUOTE]

[Bees Knees]

Will "eyebrows be raised by the IRS" when a schedule C is prepared yielding a net income of -0-( Zero).?
What would be the correct wording for the Expense?? Nominee Payor ??

Eyebrows are only raised when a human looks at the return. Since the income is being reported to your client on a 1099-MISC, reporting that on Schedule C and then zeroing it out on Schedule C means in 95% of the cases, it will fly through the system with no human actually looking at the details on the Schedule C. The key is the IRS computer will see it as something normal.

When you try to do it the correct way and put the 1099-MISC on line 21 of the 1040, the IRS computer says "Why is a 1099-MISC not being reported on a Schedule C?"

Then the computer proceeds to say "I better make a human look at this return," and off it goes to the IRS human scrutiny department.

Sure it is the correct way, but I'd rather let it fly through the system without human eyes. Then, if by some remote chance it ever gets audited, I can always explain to the auditor why it was zeroed out on Schedule C.

[outwest]

And maybe back it up..

with a 1099-Misc from the Doc to the clinic?

Note: Still time left to timely efile 1099s with the IRS.

[RAE1978EA]

Reply To Outwest

Reply/

with a 1099-Misc from the Doc to the clinic?

Note: Still time left to timely efile 1099s with the IRS.

From RAE1978EA:
Thanks. I appreciate the "back it up" suggestion.
We timely filed a 1099MISC from the doctor to the Clinic.

[RAE1978EA]

Reply to Bees Knees

Reply/

Eyebrows are only raised when a human looks at the return. Since the income is being reported to your client on a 1099-MISC, reporting that on Schedule C and then zeroing it out on Schedule C means in 95% of the cases, it will fly through the system with no human actually looking at the details on the Schedule C. The key is the IRS computer will see it as something normal.

When you try to do it the correct way and put the 1099-MISC on line 21 of the 1040, the IRS computer says "Why is a 1099-MISC not being reported on a Schedule C?"

Then the computer proceeds to say "I better make a human look at this return," and off it goes to the IRS human scrutiny department.

Sure it is the correct way, but I'd rather let it fly through the system without human eyes. Then, if by some remote chance it ever gets audited, I can always explain to the auditor why it was zeroed out on Schedule C.

--------------------------
THANKS for the clarification.. It is very logical.
I also asked: what should be the line description for the expense?? Is "Nominee Payor " okay? or could you suggest some other wording/description that you feel would be better.

My plan is to attach the letter from the Clinic in which they confirm the funds belong to them, are being reported on their tax returns, etc.
1. Should I attach the letter??
2. If so, can client still E-file or should we make it a paper tax return?
Again, thanks for your guidance.
Rae

[RAE1978EA]

Correct Presentation on form 1040: followup Questions

*****Please refer to my followup questions to Bees Knees' and ChEAr's responses.
I will report the 1099MISC on a schedule C. I will enter a one line item in expenses to report the 1099MISC prepared by client to the Clinic. (thus Zeroing out the receipt). Result will be net income -0-.
Question #1- What should the description be for the expense? "Nominee Recipient"?? or 1099MISC issued to (Nominee Recipient) " name of Clinic"?
Question #2- Should client attach copy of letter ??? from the Clinic which states the income is being reported on their Income tax returns, my client has no claim to any of the funds?
Question #3- If the "note" is included in the tax returns, can my Client still E-File or should he file a paper return?

Thanks to everyone for their input, help.