Can This Unrelated Friend be Dlaimed as a Dependent?

[AZ-Tax]

I have a Taxpayer(TP) who received a 1099-misc relating to oil & gas lease box 2. The TP had a friend (unrelated ) in 2013 that helped with some of the business affairs relating the TP’s 1099-misc income. The TP compensated her friend by paying the friend’s utilities, car repairs etc. directly to the Utility Co., Auto repair shop etc. in the tune of over 50% of the friends financial support. TP’s friend has not and will not file a 2013 tax return. Is there a chance TP can claim friend as a dependent on TP’s tax return?

[Kram BergGold]

Depends

It sounds to me like you first have to deal with barter. Your client paid the friend for work by paying the friends bills. If this exchange plus any other income the freind had is less than $3900 then as long as there are no violations of local law in their relationship your client may claim the friend as a dependent.

[David1980]

Did the friend live with TP for all of the year?

[AZ-Tax]

Not that I am aware of but ....

Did the friend live with TP for all of the year?

Not that I am aware of but I cannot remember if that is one of the qualifiers.

[appelman]

Yes, it is.

For other than close relatives. See Form 1040 instructions.

[FEDUKE404]

Rules for dependency

Not that I am aware of but I cannot remember if that is one of the qualifiers.

Sounds to me like the help for the "business affairs" constitutes income and there has been no meaningful discussion re the fundamental IRS requirements to claim "the friend" as a personal exemption.

From IRS Pub 501

Tests to be a qualifying relative:

The person cannot be your qualifying child or the qualifying child of any other taxpayer.

The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you, or (b) must live with you all year as a member of your household (and your relationship must not violate local law).

The person's gross income for the year must be less than $3,900.

You must provide more than half of the person's total support for the year.


FE

[Bees Knees]

Helping a friend with utilities, rent, food, etc. in exchange for the friend performing services for the taxpayer's business is most definitely barter income. You should not even be thinking dependent issue on this one as it is clearly a form of compensation for services performed.

No different than if your client paid his/her friend cash wages and the friend in turned used the cash wages to pay living expenses.

The real issue you should be concerned about is whether or not the friend needs to be treated as an employee and your client is now delinquent on filing payroll tax returns and paying payroll taxes.

BTW, I have a friend who also helps me pay for my utilities and other living expenses in exchange for me helping him out with his business. My friend just also happens to be my employer, so I get a W-2 and have to pay taxes for all this help I give him.

[RitaB]

Ladies and Gentlemen, It's Bees Knees

BTW, I have a friend who also helps me pay for my utilities and other living expenses in exchange for me helping him out with his business. My friend just also happens to be my employer, so I get a W-2 and have to pay taxes for all this help I give him.

That was beautiful.