Income not subject to Sel-employment tax

[Bees Knees]

No - How about sharing your knowledge about it with us?

Here it is:

http://www.thetaxbook.com/updates/thetaxauthority_update_service/pdf/govdocs/tcmemo1992-727.pdf

[Bees Knees]

From the court case:

We believe that petitioner's installation of windows for M. David Paul does not rise to the level of a trade or business. Petitioner's activity, although engaged in for profit, was neither continuous nor regular. Petitioner had never installed windows prior thereto nor at any time thereafter. Rather, petitioner's activity was a "one-time job". Sloan v. Commissioner, T.C. Memo. 1988-294. Accordingly, petitioners are not liable for self-employment tax on the compensation received from M. David Paul.

Note the court said: "nor at any time thereafter," which brings me back to my original comment. What do you do when you exclude SE tax this year for this "one time" job, and the guy comes back next year with another 1099 for this same "one time" job?

IRS penalties for underpayment of taxes can apply to both the taxpayer and the preparer.

[MilTaxEA]

No - How about sharing your knowledge about it with us?

Below is a quote from the court case.

Generally, to be engaged in a trade or business, the taxpayer must be involved in the
activity with continuity, regularity, and the taxpayer's purpose must be for income or
profit. A sporadic activity, hobby, or amusement does not qualify. Commissioner v.
Groetzinger, 480 U.S. 23, 35 (1987). The Supreme Court has further stated that whether a
taxpayer is engaged in a trade or business is a question of fact. Higgins v. Commissioner,
312 U.S. 212, 217 (1941).

We believe that petitioner's installation of windows for M. David Paul does not rise to
the level of a trade or business. Petitioner's activity, although engaged in for profit, was
neither continuous nor regular. Petitioner had never installed windows prior thereto nor at
any time thereafter. Rather, petitioner's activity was a "one-time job"

Edit: I didn't see Bees Knees previous post until after I submitted this quote. I take my clients at their word unless they give me a reason to not believe them. I will not make them pay an extra 13% in taxes unless it is required by law. As long as I am comfortable that the money was earned in a one time instance, and they understand the consequences if it is not, I will claim the money as misc income. However, if the money was made over a period of time or he expects to do it again in the future, I would report it on a Schedule C.

[Bees Knees]

I take my clients at their word unless they give me a reason to not believe them. I will not make them pay an extra 13% in taxes unless it is required by law. As long as I am comfortable that the money was earned in a one time instance, and they understand the consequences if it is not, I will claim the money as misc income. However, if the money was made over a period of time or he expects to do it again in the future, I would report it on a Schedule C.

I do not disagree with your comment. However, I think we sometimes take court cases too seriously, as if the mention of one will make IRS roll over and drop it. Court cases are specific rulings that apply to a specific set of facts and circumstances. The problem is, IRS does not always see your case as being identical to the court case you are citing. I can show you hundreds of court cases where the taxpayer relied on a specific court case to support their position, and the court said no, that case is not just like your case.

If I were going to exclude SE tax for a 1099-MISC based on the clients claim that it was a one time job and he promises never to do it again, I would have the client sign and date a written statement for my files saying it was a one time job…for my own protection against possible preparer penalties.

[Snaggletooth]

Contiguous Happenstance

One thing about the abovementioned court decision: the vocation and the 1099-MISC were for "unrelated" activities.

IRS has repeatedly held that if an activity is closely related to your work, it is treated as part of your mainstream income. Whereas exotic fish photography may be totally unrelated to a gravestone engraver's vocation, the case of a truck driver and truck maintenance are very closely related.

In fact, many truck drivers double-up and do their own repairs and maintenance.

I say this guy is cooked and should pay SE tax. Tell him he will appreciate being able to draw more SS when he gets older. (That may or may not be true, but theoretically it's supposed to make sense)

[thomtax]

Below is a quote from the court case.



Edit: I didn't see Bees Knees previous post until after I submitted this quote. I take my clients at their word unless they give me a reason to not believe them. I will not make them pay an extra 13% in taxes unless it is required by law. As long as I am comfortable that the money was earned in a one time instance, and they understand the consequences if it is not, I will claim the money as misc income. However, if the money was made over a period of time or he expects to do it again in the future, I would report it on a Schedule C.

Thanks and to Bees Knees also.

LT

[FEDUKE404]

Searching for some logic

I do not disagree with your comment. However, I think we sometimes take court cases too seriously, as if the mention of one will make IRS roll over and drop it. Court cases are specific rulings that apply to a specific set of facts and circumstances. The problem is, IRS does not always see your case as being identical to the court case you are citing. I can show you hundreds of court cases where the taxpayer relied on a specific court case to support their position, and the court said no, that case is not just like your case.

If I were going to exclude SE tax for a 1099-MISC based on the clients claim that it was a one time job and he promises never to do it again, I would have the client sign and date a written statement for my files saying it was a one time job…for my own protection against possible preparer penalties.

1 - As mentioned, court rulings do not necessarily steer the IRS ship.

2 - The location (category) of the income reported on the Form 1099-MISC is relevant.

3 - So......if I decided to become a long-haul truck driver this summer (never did that, seriously doubt if I would ever do it more than once) I am logically excluded from any self-employment tax on that income? As those folks on SNL say....."Really?!?"

(This entire discussion reminds me greatly of the ebb and flow of posts here when the issues related to self-employment medical insurance premiums, and later inclusion of Medicare B premiums, were bantered around.)

Time now to move on....

FE

[taxea]

I say it goes on Schedule C. I would bet a ton of money that he does this on the side and that this is the first 1099MISC that he received.

Like those that bring in that one W-2G. They didn't walk into the casino and play one machine and win the jackpot on the first pull and walk out of the casino after collecting.

What you say may be true but they are not the facts as presented. All the better that the 1099 is issued because if the IRS receives more than one they will letter him. With only the facts as presented and no way of verifying this wasn't a one time service I would still put it on Ln 21 with the explanation for no SE.

Don't you, as a rule, give your clients the benefit of your doubt because you have nothing, short of an investigation, to "assume" they are not being honest with you. This isn't any different.

[Gary2]

If I were going to exclude SE tax for a 1099-MISC based on the clients claim that it was a one time job and he promises never to do it again, I would have the client sign and date a written statement for my files saying it was a one time job…for my own protection against possible preparer penalties.

If you didn't get that statement, and assuming EITC isn't an issue, exactly what preparer penalties do you think you'd be subject to? You're allowed to rely on client information, so long as it's not incorrect, inconsistent, incomplete, and you don't ignore any information.

[taxea]

Bees Knees I don't think he has to promise not to do it again as long as he doesn't do it with regularity and consistancy.

[Gary2]

3 - So......if I decided to become a long-haul truck driver this summer (never did that, seriously doubt if I would ever do it more than once) I am logically excluded from any self-employment tax on that income? As those folks on SNL say....."Really?!?"

I'm not sure if there's any good way to respond to this short of going through the entire list of IRS guidelines for hobby vs business. But I'll try.

There are going to be some examples that, intuitively, we react to as necessarily schedule C. Perhaps for the long-haul driver, even if we ignore the licensing and DOT record keeping requirements, the activity of driving a truck cross-country is clearly something that takes extra skill, is not considered an enjoyable activity (by most people), and just feels like the sort of thing that no one would ever consider doing unless they were paid enough for it to be worthwhile.

On the other hand, a student who, upon graduating from college, gets paid to drive a car across country on a trip that happens to match the drive from college to home, would clearly not be. There are ulterior motives beyond profit, the student would have made the trip one way or another, the skill involved is common, and even if the agreement prohibits spending any time sightseeing, it's a trip that many people would find an enjoyable experience, at least at college age.

I guess my conclusion is that the "one time event" rule is just one aspect of the handful of rules about hobby vs business. There are cases where it's enough by itself to be controlling, not because the other guidelines are irrelevant, but because the facts and circumstances allow us - in the context of a bulletin board discussion that doesn't replace due diligence - to reach a conclusion without having to explicitly work through all of the guidelines. Countering one such example with an example that intuitively leads to an opposite conclusion doesn't prove the first conclusion was wrong. It just proves that we're replacing due diligence with intuition - which is a reasonable thing to do for the purposes of discussion.

In this case, my feeling is that it could go either way. Maintenance on a car wash isn't directly related to driving a truck. The nature of the maintenance could require no more than home mechanic skill, or could rely on the aptitude and experience that a truck driver would have. It really could be a one time thing; none of us can really judge the veracity. The best we can do is to point out the possibilities and issues, then allow the original poster to make a professional judgment.

[Bees Knees]

Bees Knees I don't think he has to promise not to do it again as long as he doesn't do it with regularity and consistancy.

That is a dangerous assumption to make. Show me in the IRS Pubs or any court case that says SE tax does not apply if the taxpayer does not regularly and consistently engage in the business. The court case cited said "nor at any time thereafter," which to me is quite different than “not regularly and consistently.”

[Bees Knees]

§ 1402(h) Regular basis
An individual shall be deemed to be self-employed on a regular basis in a taxable year, or to be a member of a partnership on a regular basis in such year, if he had net earnings from self-employment, as defined in the first sentence of subsection (a), of not less than $400 in at least two of the three consecutive taxable years immediately preceding such taxable year from trades or businesses carried on by such individual or such partnership.

A code section to consider.

The court statement that the taxpayer never did the activity before "nor at any time thereafter," is key. Earning $400 or more from the activity in two out of three years, according to the code, is deemed to be income from self-employment, regardless of how sporadic or irregular you perform the activity. That could even include an activity otherwise considered a hobby, if the hobby showed a profit of $400 or more in two out of three years.

[taxea]

One thing about the abovementioned court decision: the vocation and the 1099-MISC were for "unrelated" activities.

IRS has repeatedly held that if an activity is closely related to your work, it is treated as part of your mainstream income. Whereas exotic fish photography may be totally unrelated to a gravestone engraver's vocation, the case of a truck driver and truck maintenance are very closely related.

In fact, many truck drivers double-up and do their own repairs and maintenance.

I say this guy is cooked and should pay SE tax. Tell him he will appreciate being able to draw more SS when he gets older. (That may or may not be true, but theoretically it's supposed to make sense)

I wholeheartedly agree with the site Bee posted.

Snagglepuss- one drives a truck for a living, the other works on it. Some may do both but there is nothing to substantiate that was the case here. Even if the truck driver maintaned his own truck....it is not the same or closely related to my mind. He is employed or engaged in the business of driving trucks. If he doesn't maintain his own truck then I believe a case could be made for it being unrelated to his job.
My job/career is doing taxes. Would you say that is related to assisting, on a one-time basis, someone who needs help jumping through all the hoops tossed out by the govt programs available to modify a mortgage or save their home from foreclosure?

[Jesse]

Snagglepuss

Wow, that's respectful.