Consulting Income

[Brian EA]

Client had a shareholder who was also a consultant for his company.After 6 months of consulting the shareholder share was bought by my client. A 1099 Misc will be issued for the consulting portion of income. Would the $60,000 fees to buy him out be reported on a 1099Mis also?
thanks
brian

[ChEAr$]

Client had a shareholder who was also a consultant for his company.After 6 months of consulting the shareholder share was bought by my client. A 1099 Misc will be issued for the consulting portion of income. Would the $60,000 fees to buy him out be reported on a 1099Mis also?
thanks
brian

''

not subject to 1099 reporting, since it is exchange for value of ownership interest.

[Brian EA]

What form should be used to report this income?

brian

[Uncle Sam]

1099-B would be likely

[Roland Slugg]

1099-B would be likely

That's possible but not likely. It would only be correct if the corporation regularly redeems its own stock. An occasional redemption would not make the redeeming corporation a "broker" subject to filing Form 1099-B.

I would be more concerned, however, about the correctness of reporting those consulting fees on a Form 1099-MISC. Was the "consultant" really an IC, or was he an employee? If the latter, the payments should be reported on Form W-2, and are/were subject to FWHT, FICA and Medicare tax (plus state taxes as applicable).

[DMICPA]

Consulting Shareholder

This on the surface does not seem possible that an owner of a Company could do consulting and get a 1099-MISC. As a shareholder-owner how could the subcontractor tests be passed? Most likely upon audit these fees would be reclassified as dividends.

As to the sale of His interest, why wouldn't this be a Schedule D transaction? He did in fact sell His interest for consideration. There may be gain exclusions for small business stock etc. but this would seem to be a capital transaction. As a shareholder, He owned stock. He sold the stock. Sounds like a capital gain/loss to me.