W-2 income and uses vehicle

[Unregistered]

Individual reveives a W-2 as an employee for a delivery company. He also received a
1099-MISC with box 1 rents filled in for the use of his pickup.

What would be the correct way to report the 1099-MISC income? It seems like the wrong box is being used by the company.

He's not in the equipment rental business. Could this conceivably go on Sch.E and claim all the expenses plus depreciation? 1040 Line 21??

All your thoughts will be appreciated.

Johnathon in CA

[Bees Knees]

It is a technique that taxpayers generally try when they own a corporation and then rent their own property to the corporation so that they can pull profits out in the form of rental income without being subject to FICA or SE tax.

TTB, page 18-8 gives several cautions to this. It says:

“Payments made to employees for equipment that is required as a condition of employment are taxable wages, unless the amount is paid under an accountable plan. (Rev. Rul. 2002-35)”

“Rental of personal property, such as tools and equipment, to employers must be part of an activity clearly separate from the employment relationship. (Letter Rul. 2001127004)”

Based on these two citations, I would think IRS would try to call it taxable wages, subject to FICA. It would be difficult to argue the delivery van rental is a separate activity from the services the employee is rendering to the employer.