Form 1099 dilemma

[AJsTax]

Line 21,

Let me add another twist to the teacher scenario: Suppose a teacher proctors the SAT twice a year, every year. There's no effort to get more proctoring jobs, no real effort into getting the same gig each year, no expenses, and no guarantee it will be there the following year. And I vaguely recall that there were special provisions allowing the testing service to pay such proctors on a 1099-MISC, even though they'd seem to meet the requirements for being employees.

We do have a couple we handle that proctor the tests once or twice a year. A couple are paid with a W-2. Those that don't are handled as though it is hobby income, which it is.
FEDUKE404, like I said, each case has to be looked at and decided on all information known.
some of the questions that should be asked:
Does the person promote themselves as being in business?
Do they have business cards?
Do they have invoices?
Do they do the work regular and for multiple entities?
Do they plan to continue over time?
Are they in it with a profit motive, or just happen to make a little money they do for fun or to fill in time.
And more and more.
The IRS instructions for the Sch C state that you must be in a trade or business to be ALLOWED to use Sch C.
If a tax preparer can realistically make the case that the income is not earned in a trade or business, then they are doing the client a disservice by having them pay SE tax for no reason.
enough for now.

[AccTaxMan]

Most of the money is spent on fuel to travel to practice and games and for pizza and pop after the games. I listed the income on Line 21 and took no expense on the "A". He recently received a CP2000 asking for the SE tax.

That's the reason why I have prepared the Schedule SE for them even if I reported their income on LIne 21. I knew they would receive a CP2000 without the Schedule SE. But that is also the reason why the bank is coming after me now. In order to satisfy the IRS, you will be hunted down by the lender. Life really sucks as a tax professional.

[BP.]

So just because a sum is in box 7 does not mean it goes on Sch C, I don't care what we have been taught for so many years. There are often Spifs that are reported in box 7 instead of box 3 and the IRS even has a special report on those to show them in line 21.

I have a client employed in retail sales. He receives mfr incentives, reported to him on 1099-Misc, using either box 3 or 7, depending on the mfr, and which are entered on line 21, no SE tax. Exact same procedure for several years. This year, he has received notices to pay SE tax on the SPIFFs. So far, two response letters and a phone call to PPL, and I'm not sure if it is cleared up yet.

[FEDUKE404]

Banks and IRS in tandem?

... But that is also the reason why the bank is coming after me now. In order to satisfy the IRS, you will be hunted down by the lender...

Interesting observation - I've never had any direct contacts from the bank of a client, especially regarding any IRS issues. (And if so, absent written permission from my client, I doubt if I would provide them any information. But that's a lawyer question.) Several clients have requested copies of returns et al which the banks have needed for pending loans, scholarship stuff, etc. Perhaps I have lead a charmed life?

Of course, per some of the comments on this thread I guess you could just ask the coach if he had any business cards or did any advertising or perhaps even did he perform a favor for a friend. Answers in the negative would apparently remove the requirement for a Sch SE.

Then you should file a Form 1040X asking for a refund of any Sch SE taxes that you previously calculated. If you take that route, please let me know the reaction of the IRS to your refund request.

FE

[DaveO]

That's the reason why I have prepared the Schedule SE for them even if I reported their income on LIne 21. I knew they would receive a CP2000 without the Schedule SE. But that is also the reason why the bank is coming after me now. In order to satisfy the IRS, you will be hunted down by the lender. Life really sucks as a tax professional.

I fully understand your position on this and considered putting the activity on a "C". But the facts and circumstances are that he is not engaged in a for-profit activity. Had I put all of his expenses on a "C" with the income he likely would have had a loss. What would the IRS say about a Chiropractor earning 6 figures reporting a loss on "C" as a baseball coach? I considered my approach more conservative. I saw no point in listing expense on the "A" since he wouldn't clear the 2% of AGI.

That being said I would put the income on "C" if I filed the "SE".

[AccTaxMan]

So..

Thank you for all the replies. So, what do you guys think is the best way to take care of the situation? I see problem in every avenue.

(1) If we report it on a Schedule C and file a Schedule SE, it satisfy both the IRS and the bank. But, by the rule, this is NOT correct because it is NOT a business.

(2) If we report it on line 21 and do not file a Schedule SE, the client will receive a CP2000.

(3) If we report it on line 21 and file a Schedule SE, the bank will hunt you down.

So what to do? I personally feel like dead meat.

[BHoffman]

In situations like this, and I do have a couple, I place the 1099 income on Schedule C; I have a deduction for the entire amount saying something like "Form 1099 issued in error", and the Schedule C has zero income.

Then the 1099 income goes on Line 21 and NO SE tax is calculated or paid.

Maribeth

Hi Maribeth and others - under what circumstances would you say SE tax is NOT due on income reported on 1099-Misc, box 7? I use pretty much the same criteria as AJTax does, but am sometimes left wondering...

Thanks

[Gary2]

I just remembered an even trickier case. Taxpayer (another school teacher) received a 1099-MISC, box 7 amount that was actually a tuition reimbursement. The condition for it was that taxpayer be employed by one of a handful of municipal school districts and attend and pass a specific class at a state college. The reimbursement came from a different state educational unit that was administering the grant that funded the reimbursements.

It was, in one sense, a job-related reimbursement, but taxpayer performed no services for the agency that issued the 1099. From a tax perspective, it would have made more sense for the school district to have issued the payment, adding it to the usual W-2, but I'm guessing the grant would not have allowed that (either explicitly or as a practical matter for the cost of administering the grant).