Is this right?

[powerage]

We have a client who got a 1099-MISC with a payment from a trust in Box 7. According to the IRS...

If the following four conditions are met, you must generally report a payment as nonemployee compensation.

You made the payment to someone who is not your employee;

You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);

You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and

You made payments to the payee of at least $600 during the year.

#2 does not apply to her. Shouldn't the amount go in Box 3 and reported as other income or am I wrong?

[BOB W]

What did she do for the Trust? Be clearer. What connection does she have to the Trust?

[erchess]

hmmmmmm

If you determine that your client should not pay SE Tax on the money you can put it on line 21 and await the IRS Challenge. I would personally judge the Challenge to be likely and not worth the trouble unless the amount in question is significant to the taxpayer. I think I would do the disclosure to cover my posterior if I were you.

Note however that the question for your client is whether she or he received the money in the course of his or her trade or business and not whether the money was paid by the payer in the course of their trade or business. In other words when I hire someone to paint my house which I do not use for business purposes then I don't need to do a 1099 but the painter probably needs to pay SE Tax on the money I pay. On the other hand if I in the course of my trade or business pay someone for fixing my printer I may need to do a 1099 for them but they may or may not need to pay SE Tax on the money depending on whether they are in a business that includes fixing printers.

[powerage]

As far as I know, she just got a payment. Nothing more, nothing less. No working or anything. I guess her parents set up the trust for her and her siblings. Her Mom is still alive, from what the preparer who is working with her told me. As it stands right now, with her W-2 wages and other income, she is looking at a BD of $12,000, which includes $3,000 in SE taxes.

I'll be able to look at the return tomorrow. I'm not supposed to post while at work, but I will have to make an exception.

[BOB W]

As far as I know, she just got a payment. Nothing more, nothing less. No working or anything. I guess her parents set up the trust for her and her siblings. Her Mom is still alive, from what the preparer who is working with her told me. As it stands right now, with her W-2 wages and other income, she is looking at a BD of $12,000, which includes $3,000 in SE taxes.

I'll be able to look at the return tomorrow. I'm not supposed to post while at work, but I will have to make an exception.

Whoever prepared the 1099 made an error.. She should of rec'd a K-1 from the Trust, according to your explanation....

[powerage]

Ok. I just talked to the preparer, he told me the client called the people that run the trust about this, and their in-house CPA said it was reported correctly.

Thanks for your help.

[BOB W]

Ok. I just talked to the preparer, he told me the client called the people that run the trust about this, and their in-house CPA said it was reported correctly.

Thanks for your help.

It sounds like the information being provided by both sides leaves a lot to be desired. Maybe the CPA is lazy and does not want to fix the problem AND/OR the beneficiary is not telling the truth in how she is connected to the trust.....?????

[powerage]

Yea, more due dilligence is required, though I believe the CPA made a mistake. I did briefly (10 minutes) talk to the client when she first came in a couple of days ago, but I had to leave for a doctor's appointment. I asked her if she had any expenses related to that income, and she mentioned that it was a trust payment. She also brought in 3 1099-C's, so I guess she is on the level.

[oceanlovin'ea]

in and out

If you feel that it is not self employment income, you can put it on the schedule C and then expense the same amount.
Then put the amount as other income.

You shouldn't get letter from IRS because you did include the Schedule C. The income will still be reported on the tax return.

Linda