Receipt of Funds

[S T]

Taxpayer "sourced/referred" a client to a Company, the Company purchased the client's business, my taxpayer received $$ for a "finders fee" for the referral and conclusion of the purchase.

This is not my taxpayer's regular line of business/employment. There were not any 1099 forms issued, so I suspect it was "buried" in the acquisition cost.

My question would be how to report - report on line 21 as other income not subject to SE since this is not a trade or business?

The $$ amount is huge!

Sandy

[Gretel]

I think if this is a one time deal and your client doesn't do this on a continuous basis then this income is not subject to SE.

[Jesse]

Agree with both of you if it's one time deal.

What type of business is the taxpayer in/what is the taxpayer and client relationship?

[S T]

Referral

T/p introduced/connected a business owner that was looking to sell his company with a Company that puts mergers/acquistions and venture captial together, and that Company paid T/P this "finders/referral fee" at the request apparently of the business owner that was selling his company. T/p states she had little if any contact at all with the Company that purchased this business (the company that does the mergers/acquisitions).

T/p just received the check $$$. (Now why I can't JUST receive a check like that for a phone call or two).

Seems like the whole amount that T/p received is just buried somewhere in the Accounting Records of the merger/acquisition cost.

T/p has no expenses incurred. T/p is not a professional in the field of brokering, mergers/acquistions of businesses.

No relation to her job which is health care management, Sect 125 programs for a company that administers for various employers.

Thanks Gretel and Jesse for your input on this, I think I will report on Line 21 NOT subject to SE.

Sandy

[kaimana]

Line 21 Finder Fee kaimana

[S T]

Ready to complete return

Thanks, for the prior replies

Question - what description would you list on line 21? There is no 1099 Misc form, but we are reporting and not applying SE tax?

Would you simply list as "Finder Fee" or "Referral Fee" or ?? And possibly add a EF note - The amount is $100K

Thanks,

Sandy

[erchess]

My two cents

There seems to be consensus on the board that we are talking Line 21. I agree with that as long as the client has the stomach for an audit which I would judge to be MLTN. If I had any doubt I would run it through SE Tax and show the client what is being fought for and say that I felt we should win but we might lose anyway unless he or she was willing to take it to tax court which might cost more than the money at stake.

If it goes on L21 I like either of your labels fine.

As for the E Filing note I would think that a statement to the effect that it was for being instrumental in the sale of company X by TP to Y for Z dollars (just leave out anything you don't know and can't find out) which is not the normal trade or business of the taxpayer would be appropriate. You might go on to list the trade(s) or business(es) which the taxpayer has pursued in the last up to ten years. I don't hold out much hope that you can head off an audit but you might start the audit one step closer to the finish line because the auditor might respond to the note instead of to the bare fact that a given amount was on L21 instead of Sch C. There can of course be no guarantee that the letter the client receives will reflect knowledge of the efiling note but imho it's worth a shot.

[ChEAr$]

Hmmm.. description...

How about.... Kickback?

[AuditorTurnedGood]

[QUOTE=erchess;87323]There seems to be consensus on the board that we are talking Line 21. I agree with that as long as the client has the stomach for an audit which I would judge to be MLTN. If I had any doubt I would run it through SE Tax and show the client what is being fought for and say that I felt we should win but we might lose anyway unless he or she was willing to take it to tax court which might cost more than the money at stake.QUOTE]

It would seem here that this truely is a one-time deal, and it has no relation to the TP's regular job, so I would think the IRS wouldn't really have a leg to stand on. That said, is the TP maxing out the SS at her regular day job? If so, the only cost will be the 2.9% medicare, which isn't terrible really.

[JohnH]

No, 2.9% isn't really terrible.

But I think what would be truly terrible is if Sandy doesn't charge the client at least 1.45% (half the savings), for researching this and saving the client the 2.9% in the first place.