1099-MISc income SE Income or Sub-s income

[Kurly]

Client was selling pest control door to door.

Pest Control company set him up as a Sub-S business. Pest Control company filed all Sub-S papers creating the Sub-S.
( telling him that he would not have to pay SE tax etc. by claiming it as Sub-S income)

Client was sent out of state to knock on doors to sell pest control.

Pest Control issued him a Form 1099-MISC in his Social Security # for all the monies they paid him.

Client claims it should be income to the Sub-S.

How would you report the income? Individual Income Tax or Sub-S income?

I have searched the internet and IRS, can not find any suggestions how to handle this.

Thanks All

Kurly

[Burke]

I think the company messed up. I have seen a lot of companies demanding that these taxpayers set up LLC's (this is the first one I have heard of to do a Sub-S) to cover their butts so that they can treat them as independent contractors, or else put a shield between them and the people they pay, for liability, workmen's comp, etc. Does this guy do work for anyone else in this line of business? If there IS a Sub-S, (and they are the ones who wanted this?) they do not need to give him a 1099 since it is a corp. But he will need to pay himself a salary. Since they 1099'd him personally, I'd just go on handling it like he did it before, which I assume was a Sche C. Did the 1099 have the Sub-S company name on it? Are you sure it wasn't an LLC? He could have checked to be taxed as a corporation.

[Kurly]

Reply to Sub-s VS Personal

Yes the 1099-MISC were in his Social Security #. No he does not offer this door to door sales to anyone else.

He represents only the one company.

The address of the Pest Control Company is in Las Vegas. (the address has hundreds of company using this address
on Eastern Avenue. The parent company there basically sets up Corporations for anyone who wants a Nevada address.)

K

[Bees Knees]

Just because an S corporation is set up and all state incorporation papers are filed does not automatically mean all income and expense goes on the S corporation tax return. Stock needs to be issued in exchange for capital contributed. An S corporation checking account needs to be opened to deposit income and pay bills. A board of directors meeting has to be held to determine employee/shareholder salary. Wages need to be paid for services rendered by the shareholder/employee. Double entry bookkeeping needs to be performed to record corporate financial transactions. And S corporation tax return (Form 1120S) needs to be prepared and a K-1 issued to the shareholder(s). 941s, a 940, a W-3 and W-2s need to be filed to record payroll transactions. State payroll obligations such as State unemployment taxes and workers compensation has to be taken care of.

If none of the above was done, then the 1099 income goes on Schedule C as self-employment income. The fact that an S corporation was incorporated under state law is irrelevant.

[Burke]

And I doubt very seriously if this company set him up as a Sub-S all by themselves. He would have had to sign something. But I agree with Bees Knees, and I would ignore it too.

[Snaggletooth]

One Step Further

I might even go one step further and do a statutory employee type Sch C. There is no way this guy is anything but an employee and I believe he would qualify as a statutory employee.

There is no functional purpose for the Sub-S other than to shield the payer from payroll taxes. Then they make sure this guy pays both ends of the SE tax by sending him a 1099-MISC.

Sleazy.

[Burke]

I don't think he can qualify as a statutory employee. Those are certain employees designated "by statute" to be kind of a hybrid; i.e., they get a W-2 subject to FICA/MC taxes withheld and matched by the employer, but the wages go on a Sche C. Life insurance agent is one which is specifically mentioned in the statute, and the most common. On the 1099MISC, I understood it was in his SSN. I was curious about the name on it -- company name? or individual TP name?

[Burke]

Yes the 1099-MISC were in his Social Security #. No he does not offer this door to door sales to anyone else.
He represents only the one company.
The address of the Pest Control Company is in Las Vegas. (the address has hundreds of company using this address
on Eastern Avenue. The parent company there basically sets up Corporations for anyone who wants a Nevada address.)
K

Don't think this will fly with the IRS if they dig into it. They are really becoming aggressive about employee classifications. States too. I have a self-employed marketing rep who represents a number of companies and is truly self-employed. Last year, her biggest company supplier refused to pay her commissions already due her until she set up an LLC and gave them the number. She did, gave them the #, and this year the 1099 had that number on it, but in the format of an SSN. I pity the poor soul that HAS that SSN. He's going to get a nasty letter from the IRS about failure to report that income. Had that happen once.

[Bees Knees]

If you don't think he should be treated as an independent contractor, see TTB p. 5-23 under "Erroneous Treatment of Employees as Independent Contractors." Doing it that way will save him having to pay half the FICA.