Free Rent

[Gary2]

There is no law that says cash has to be paid in addition to a tax free fringe benefit. Nothing in Section 119 says lodging may be excluded only if cash wages are also paid. In fact, Section 119(b)(1) says an employment contract is not what determines whether the rules of Section 119 are met. The only requirement for exclusion from income is that the lodging is furnished for the employers convenience and the employee is required to accept the lodging as a condition of his/her employment.

I get that there doesn't have to be cash, but it does specifically say employee. And while it says that neither the contract nor state law determines whether the meals or lodging are intended as compensation, I have to assume that the code does defer to either state law or common law to determine whether or not an employee/employer relationship exists. And that is my question - what does it take to establish that an employee relationship actually exists? I'm not saying that there is none, but rather, how can it be shown to exist?

BTW: If the landlord does pay cash in addition to free rent, the landlord should issue a W-2, not a 1099. According to the chart in TTB, page 13-7, if you call the caretaker an independent contractor, the meals and lodging exclusion cannot apply.

I would assume the usual questions concerning employee versus independent contractor apply. But that begs the question as to the possibility that neither applies.

[taxea]

Is there a written agreement or contract? This might be considered bartering or the "non-rent paying party" may be an IC. Third option would be employer/employee relationship. It is not uncommon to have a manager/handyman living on premises. You need to determine the exact terms of the agreement.

Too many non answered questions to properly determine this relationship. If there is not written document then perhaps the client could determine from other like businesses how they handle the tax consequences of a live-in manager. Or you could do the research for the next time you have this type of issue.