Sch C vs Other Income (reg rep continued)

[skdoorn12]

First of all, thanks for the replies I rec'd to my earlier post.

Some of you mentioned that the Rep may still have his Security License for 2 years.

This is the case with my client. He resigned from the BD on Jan 15, 2010 so the license is in the dormant stage for 2 years. It will terminate completely if he is not appointed in 2 years to a new BD. He has since taken a W2 job in a totally different field of work with no intention of working in the securities or insurance business again. The client does get renewal commissions on some long term care policies sold. These will continue indefinitely even w/o an insurance license (is my understanding) even though he does not service the contract. The amount is small, only $60 per month.

The client's intent was to "sell" the book of business to his colleague, however, to be fair he did not want to charge him for clients who would choose to find a new rep. Thus the 50% of commissions for one year. Thus, the new rep would not be paying for clients that he did not retain.

Though he is only 42, he is "retired" from that line of work. He did not sign a "no compete" clause as far as I know but I will double check that.

Any further comments would be appreciated. Some felt the Other Income was the place to report. Others say SE tax is due on the income. It is not clear to me yet how to proceed.

Thanks in advance for any add'l comments you may have.

[oceanlovin'ea]

It seems to me that years ago I had a retired insurance agent who received small amount of commissions on policies he had written for several years.

I think I put it on Schedule C because it was income from work he had done in the past.

Linda, EA

[Burke]

Actually, renewal commissions to a retired insurance agent on insurance policies he wrote are treated as other income, no SE tax. On the other hand, this situation is somewhat different, in that it was by intent a sale of a book of business, and I believe it should be treated as such, as it was established as a fixed price percentage (based on the new reps income.) So he is receiving the payment which was specified at time of sale even though it may fluctuate. As I understand it, the new rep would receive income from new sales using the old client base, with him paying the old rep a portion of those sales representing his purchase price of the business. That would be neither Sche C nor Other Income but the normal treatment of components involved in the sale, this being Goodwill. Nashville had the correct answer in the previous post.

[luke]

Op

OP "Client had been Self-Employed Financial Planner (Registered Rep) with broker dealer until January 15, 2010.

Resigned at that time and turned over client files to another Reg Rep with same broker dealer.

Signed agreement with other rep that he would receive 50% of all commissions from his old clients for 1 year. In essence, whatever that amount turned out to be, would be the selling price of the business to the other rep.

The 50% was paid directly from the broker dealer each commission run. It was not paid by the rep who bought out the client base.

At the end of the year, the retired rep receives a 1099-misc just like previous years, however, he did not actively work to earn these "commissions".

Because he was no longer in the business, would this now be considered Other Income (Line 21) or still SE Income on Sch C.?"

SINCE original rep WAS self employed AND commissions are STILL coming directly from broker dealer (and orig rep is STILL receiving 1099-misc) - the "selling" rep is STILL self employed - (he does NOT own those clients - they belong to the broker dealer, hence the commissions still coming from that B/D)