CP2000 Regarding Self Employment

[Kram BergGold]

My client's mother gives him $24,000 a year to do routine home maintenance, to hire people to do large jobs on her house, maintain her files and records, cut firewood and shovel snow, pay bills, take her trash to the dump, manage an t roubleshoot her electronics (computer, internet, TV), etc. He does not do this type of work for anyone else nor has he ever tried to advertise his availabilty to do this for anyone else.
Because he only does this for his Mom and it is not related to his true SE income as a historical renovator, to me this $24,000 is other income not SE. To the best of my knowledge the Mom does not issue a 1099 for this. I have reported the $24,000 for many years on line 21. Out of the blue, the IRS is recharacterizing it as SE for 2010 on a CP2000. Any thoughts on the best way to convince IRS that SE does not apply here?

[veritas]

Sounds to me

My client's mother gives him $24,000 a year to do routine home maintenance, to hire people to do large jobs on her house, maintain her files and records, cut firewood and shovel snow, pay bills, take her trash to the dump, manage an t roubleshoot her electronics (computer, internet, TV), etc. He does not do this type of work for anyone else nor has he ever tried to advertise his availabilty to do this for anyone else.
Because he only does this for his Mom and it is not related to his true SE income as a historical renovator, to me this $24,000 is other income not SE. To the best of my knowledge the Mom does not issue a 1099 for this. I have reported the $24,000 for many years on line 21. Out of the blue, the IRS is recharacterizing it as SE for 2010 on a CP2000. Any thoughts on the best way to convince IRS that SE does not apply here?

like a household employee.

[David1980]

I don't believe the fact that he only does this sort of work for his mom, that he does not advertise, or has another SE job are relevant to the determination.

Which leaves him receiving $24,000 for what sounds like frequent and regular work having gone on for many years. I think arguing it's not SE income would be difficult. Assuming a 1099 wasn't issued I wonder how the CP2000 came to be.

[jimmcg]

Determining self employmnet income

Advertising and having other customers is not the principle criteria (only a possible supporting argument ) for determinging or not determining self employment income. You said it yourself cash is received in return for services performed. That is a pretty tough hurdle to get over. Perhaps some more astute minds than ours can come up with a good argument in favor of it not being self employment income.

[jimmcg]

I don't believe the fact that he only does this sort of work for his mom, that he does not advertise, or has another SE job are relevant to the determination.

Which leaves him receiving $24,000 for what sounds like frequent and regular work having gone on for many years. I think arguing it's not SE income would be difficult. Assuming a 1099 wasn't issued I wonder how the CP2000 came to be.

Absent a 1099 being issued the fact that it was included on line 21 for several years in a row probably set off the bells and whistles.

[KathMorgan]

One time, yeah... year over year.......

Either he is self employed and subject to SE tax or his Mom should be paying him as a household employee, issuing a W2 and paying FICA on him via Sch H. It's on going and he is performing services for compensation. Have him pay up and hope they don't go back to other open years.

[gboykin]

I agree with the others. Subject to SE.

The line 21 is what set it off. I had a client last week get a CP2000 for line 21 entry. It was a 1099C, which we reported on line 21 correctly, with the correct line 21 explanation. Called PPS and the IRS employee took care of it over the phone. IRS was calculating SS tax on the 1099C in error.

[Roland Slugg]

Your chance of prevailing is about as close to zero as it can get. None of the "reasons" listed in the OP are relevant; in fact IMO they further support the IRS's position. Not only that, but if you argue with the IRS about this, you might tempt someone there to ask its computers to make a list of all returns prepared by you (keying off your PTIN), then screening them for possible audit. (In fact the IRS might do that anyway.)

If this has been going on for several years, and the IRS is only looking at one year, you and your client should consider yourselves lucky. But don't breathe too easy just yet as there are at least two other open years. You may also want to start thinking about what you're going to do when the client asks you to pay the penalties and some or all of the interest.

Finally, the non-issuance of a 1099 is irrelevant. In most cases only businesses are required to issue 1099s.

[FEDUKE404]

Open up the wallet

Unless you want to try the "he was only painting houses those summers when he REALLY was a school teacher" evasive technique, this guy DEFINITELY owes SE tax.

Quite frankly, with the facts presented, he sounds very much like an employee which might decrease his own SE taxes but open a very large minefield for the mother. With the dollar amounts stated, she could be staring down the barrel of some extensive taxes/penalties on unpaid (employer) Social Security wages, not to mention same for federal/state unemployment insurance, workmen's comp, et al.

I'm always impressed at the "end runs" some folks attempt to evade the tax laws, and then squeal when they run out of luck.

FE

[gboykin]

Was she deducting this anywhere on her return? If not, I question why this wasn't considered gifts and not reported on his return at all.

Just wondering out loud.

[Black Bart]

Nothing ventured, nothing gained.

Here's a dated article, but some of it applies.

http://www.cookco.us/irs_letter_self-employment_tax.htm

The CP2000's probably a computer hiccup triggered by the large $24K and chances are a human being hasn't even seen it. It's unlikely you've been (or will be) singled out as a "problem preparer," so I wouldn't throw myself out a window/on the mercy of the IRS just yet (conventional wisdom here aside).

Maybe try the short and simple approach -- just have the taxpayer write a note (civilian appeals usually get more sympathy than pros) on the bottom of the CP2000 and send it back -- something like: "This $24K is not from self-employment work -- it's money my mother gave me for taking care of things around the house. I don't do any work like that for the public. Please delete this charge."

Maybe it'll fly, maybe not (could be they'll want an "H"), but where are you now? Besides you're just trying to get off the hook for this one year (as far as you know right now) and sometimes the less said the better (why bring up the past if they don't?). Too, it's going back to typical IRS clerks (not known for dediction/zeal) rather than Judge Learned Hand, so could be you'll luck out like the guy in the article.

[taxxcpa]

The best argument would be if the mother does not deduct it on her return.
If she deducts it, then it seems that he would have to report it as self-employment.

If she deducts it and does not issue a Form 1099, she could be in trouble.

[Kram BergGold]

Thanks Black Bart

The article was just what I was looking for.
I will look into other issues like, is the mother deducting all or part of the payment.

[ChEAr$]

If she deducts it and does not issue a Form 1099, she could be in trouble.

The fact that an individual may deduct something on an individual return, i.e. 1040, does not mean she should have issued a 1099. ONLY if it were in connection with a trade or business is a 1099 required. Just doing chores around the house doesn't fit the bill.

[FEDUKE404]

Now I AM confused...

What relevance to anything is whether the mother deducted the $24k/year payments?? (Also, what kind of "deduction" would even theoretically be applicable, based upon the facts provided by the OP?)

It still pretty much sounds like taxable income to me, and (again) from the facts presented - including implication of multiple year payments - exceedingly close to self-employment income as well. The fact that the son "works" as a historical renovator does not carry much weight, at least in my opinion. Playing devil's advocate, I think I could make a pretty good case that the son IS engaged in a trade/business that for multiple years has kept him busy as a handyman/jack-of-all-trades/whatever and for which he received $2,000/month.

If the mom/son want to go the "it's just an annual gift" route then the issue of gift taxes could arise. MORE trouble for someone!

As for the son writing a letter to the IRS stating "I get $24k/year just to take care of things around the house" that might fly with the IRS. But I would not wager a lot on a successful (multi-year!) "Oops!!" being accepted. The other thing is that, in today's IRS world, as a preparer I would have some very strong reservations to filing such a return with my own PTIN on it. I always have to factor in the reward versus risks for tax returns which I now sign....

FE