CP2000 Regarding Self Employment

[Gary2]

Unless the mother is operating a sizeable country estate, or there are other unusual circumstances, I'm having a hard time seeing how this couldn't be a gift, at least in part. What is the FMV of the actual services provided? Maintain records and bills - perhaps $500, max $1000/year. Cutting firewood - I think $1K of firewood is typical. Shoveling snow, at least this past winter in MA was probably $300, max. (I think we got plowed out twice, and I know I'm assuming the mother is in MA.) Amateur electronics troubleshooting, say four times a year, $500. Trash collection in an area where there's no public pickup, say $2000. Routine home maintenance, say $1000-$2000. Hiring contractors to do large jobs might be worth $2K a shot (as opposed to doing the large projects himself), but is that every year? Throw in another $2-3K for lawn and yard work.

In other words, I don't see it getting close to $24K. Even $11K (which would put the rest at annual gift exclusion limit) is pushing it.

[New York Enrolled Agent]

..., I'm having a hard time seeing how this couldn't be a gift, at least in part.

I get just the opposite feeling - it's not a gift in the statutory sense.

The Supreme Court in Duberstein writes: "A gift in the statutory sense, on the other hand, proceeds from a "detached and disinterested generosity, " ... "out of affection, respect, admiration, charity or like impulses."

Rather than pay others, mom pays her son for services that he performs as a "handyman" or "office assistant". Nothing wrong with that but I don't see it as a gift.

[Gary2]

Rather than pay others, mom pays her son for services that he performs as a "handyman" or "office assistant". Nothing wrong with that but I don't see it as a gift.

But what I'm saying is that rather than pay others $5,000 or $10,000- she pays her son $24,000. Nothing wrong with that, but it's only partly for services, partly for a gift.

Otherwise, where do you draw the line? Suppose parents, making too much to get any AOC, have a kid entering college. Kid doesn't need the money, so spends the summer as a volunteer at a museum or hospital. Parents pay the kid $20K for mowing the lawn twice, paid on Schedule H, exempt from FICA. Kid claims own exemption, AOC, and gets the refundable AOC. Does that sound right? Not to me.

Surely the mother satisfies the affection part. So the question I'm asking is whether $24K is FMV or evidence of generosity.

[Kram BergGold]

IRS closes with no change

Just thought I would let everyone know, the IRS closed the examination with no change. I guess they agreed, that my client's activities, for his mother, did not constitute a business.

[FEDUKE404]

So what was it?

Just thought I would let everyone know, the IRS closed the examination with no change. I guess they agreed, that my client's activities, for his mother, did not constitute a business.

So, did the son receive the $24k from his mom as a gift, miscellaneous income, household employee income, or an outright "who cares?" situation?

FE

[S T]

Kram - thanks for posting the final outcome and congratulations on a "no change", but I - like FeDuke am curious to know --- how you arrived at presenting that information - based on the OP.

Thanks,

Sandy

[Kram BergGold]

Explanation

In a letter, I explained that the son only did this type of work for his mother and that it was like doing chores for her. The things he did had nothing to do with his real business and he did not hold himself out to anyone else to do this type of work. I also mentioned that she did not claim these payments as a deduction on her taxes (just to show the personal nature of this ttransaction). Then I went on with a quote from the Code Section that says the level of activity must rise to a certain level and as it did not, it was not self employment income.

[FEDUKE404]

Clarify please

In a letter, I explained that the son only did this type of work for his mother and that it was like doing chores for her. The things he did had nothing to do with his real business and he did not hold himself out to anyone else to do this type of work. I also mentioned that she did not claim these payments as a deduction on her taxes (just to show the personal nature of this ttransaction). Then I went on with a quote from the Code Section that says the level of activity must rise to a certain level and as it did not, it was not self employment income.

Man, where can I find someone to pay me $2000/month "to do chores," especially if the income is tax-free?!?

So it was a gift ??

And $24k of income did not appear in any way, shape, or form on the son's income tax return??

(I never quite understood the "claiming as a deduction on her taxes" issue. I have a household employee, give that person a W2, and deduct zilch of those payments on my personal taxes. I also pay a self-employed person to do yard work for me...I don't deduct that either. Should I ask him if he wants to do some "chores" for me??)

I guess that is one way for someone to avoid paying his "fair share".....

FE

[Gretel]

And $24k of income did not appear in any way, shape, or form on the son's income tax return??

FE

OP said reported on line 21.

[Kram BergGold]

Gretel is correct

The income was reported on line 21 so income tax paid but no SE.