Client Received Referral Fees but NO 1099-misc

[AZ-Tax]

My client is mortgage broker and her firm issued her ONLY a W-2. Since my clients mortgage firm is not involved in loan modification, my client referred business to a loan modification firm and recieved approx $3500 in referral fees but then this firm went bankrupt in 2009 and never issued my client a 1099. It seems to me this $3500 should be subject to: Fed, State & SE tax therefore a Sch C or Sch C EZ seems to be the correct place to report this income. Your thoughts please

[taxxcpa]

I agree

I would report it on Schedule C and SE just as if she had received a 1099.

[Jiggers]

I also agree

Just because there is no 1099, you still have to report the income.

Wish my clients understood that. They do get an education when they tell me they also sold something (hay, calf, bull, cow, etc.) and got cash and don't have to report it.

Of course next year they don't mention anything!

[VT-EA]

Spifff

Line 21. No SE

http://www.irs.gov/pub/irs-pdf/p3204.pdf

[appelman]

Nice catch!

VT-EA has it right.

[taxmom34]

but why?

i get the impression client received 1099misc for some time, and now that the company is no longer, SE doesn't apply? why not?

[RitaB]

Yeah

They do get an education when they tell me they also sold something (hay, calf, bull, cow, etc.) and got cash and don't have to report it.

Of course next year they don't mention anything!

Yeah, It's the great clam up, Charlie Brown.

[gkaiseril]

Line 21. No SE
http://www.irs.gov/pub/irs-pdf/p3204.pdf

Since this is in the financial services it may not qualify as a SPIFFY program. SPIFFY programs were paid to salesmen/women that were not employees of the manufacturer to promote their product. As noted this applied to specific automobile salesmen/women and sales staff in department stores selling specific home appliances.

Just make sure these payments are really part of a SPIFF program. All of the SPIFF payments I have seen were reported on a !099-Misc and many times as a prize. This is an additional bonus commission for meeting sales goals.

What did you get for your referrals of clients needing a mortgage?

[JohnH]

It's an interesting approach, and might just work. Most SPIFFS are paid for product or merchandise sales, but who is to say that's the limit? The IRS publication was designed simply to alert automobile salespersons that they had to pay income tax on the SPIFF payments, but it also made it clear that they don't have to pay S/E tax because the payments are made directly to them by the manufacturer, who is not their employer. Since they're an employee of the dealer, they are clearly not carrying on a trade or business, so they bypass SE tax on the payments.

Seems like the same principle could apply here, except that the item being sold is a referral rather than a tangible product. The IRS notice certainly doesn't limit itself to specific items - it's just laying out a general principle that SPIFFS are taxable income.