taxable or not?

[Kram BergGold]

My client wrote this to me,
I'm thinking of becoming a host family for a nearby language school. To cover each student's housing and food costs, they pay the host families $700/month per student. They tell me it's nontaxable income because it's considered a stipend. Does that sound correct to you?
My thinking is it is reportable but you would claim expenses like you were a B & B.
Any other opinions?

[Gene V]

Any other opinions?

I would think it would be taxable—need to do more research.

This is from Host Family Guidelines:

The stipend paid to host families is reimbursement money to cover the additional costs associated with hosting, it is therefore not taxable and need not be declared as taxable on your tax return.

http://www.lincamerica.com/html/hfguidelines.html

[erchess]

Where did you get this client?

I think it is wonderful that you have a client who seeks your advice before going into something. I think most of us would agree that the average client would take the money and most likely not even tell us about it until the IRS Letter arrived.

My question is, how did you attract this person into your life?

[Luis Mopeo]

It seems perfectly legitimate to me to treat the amount not as income or revenue, but as reimbursement for expenses. It's no different in principle than submitting receipts for expenses later and asking for reimbursement. This assumes the actual cost of keeping the student is at least $700.

[iratax]

Documentation

This is like a non accountable plan. You must report income and then deduct the expenses. Since he is not an employee it must go on a schedule C. As long as expenses exceed income it would be non taxable but reportable.

[Bill Tubbs]

Business?

Just because someone will be receiving money does NOT make it a business. It MAY be a business, or MAY be a hobby: http://www.irs.gov/newsroom/article/...169490,00.html

If no documentation is kept regarding expenses, then the entire $700 would be taxable income. The question would be HOW to calculate expenses attributable to the student being hosted. How much higher is the grocery bill; how do you calculate utilites (divide the water bill by number of people? did the heating/cooling bill go up at all by having one more person there?) If the expenses can be substantiated, then those expenses would help reduce the amount of taxable income.

Bill

[Luis Mopeo]

Just because money hits the hand doesn't make it a business, doesn't make it taxable, or reportable.

I'm involved in a youth sports organization. I enter my team in tournaments, which all require a payment to accompany registration. I make the payments, which accumulate to somewhere between $750 and $1,000 a year. I present a receipt to the association for the expenses I paid on behalf of the association. They write me a check to reimburse me.

This is not an accountable plan, it is not taxable income, and I don't report it on my tax return.

We went to a tournament this weekend. I put food for all the players on my credit card to the tune of about $800. The association will reimburse me. Please don't tell me I need to file Schedule C to report this as taxable income.

"If no documentation is kept regarding expenses, then the entire $700 would be taxable income."

I disagree. The transaction is what it is, regardless of documentation. Of course you want documentation in the event that the IRS comes asking questions, like an audit where they do a bank deposit analysis and wonder where that money came from. But not having specific documentation does not mean the expenses don't exist.

The only possible question I see is whether it will really cost $700 per month in expenses. Sounds pretty reasonable to me when you split up home costs, utilities, food, entertainment, etc., etc. I would expect that the organization has some reasonable method of coming to that number. Maybe there was an IRS audit or letter ruling, and that's why they say it's not taxable.

[Bill Tubbs]

Just because money hits the hand doesn't make it a business, doesn't make it taxable, or reportable.

Agreed.

I'm involved in a youth sports organization. I enter my team in tournaments, which all require a payment to accompany registration. I make the payments, which accumulate to somewhere between $750 and $1,000 a year. I present a receipt to the association for the expenses I paid on behalf of the association. They write me a check to reimburse me.

This is not an accountable plan, it is not taxable income, and I don't report it on my tax return.

That IS the definition of an accountable plan -- you provide receipts and they reimburse you. I would agree that this doesn't get reported on your tax return.

We went to a tournament this weekend. I put food for all the players on my credit card to the tune of about $800. The association will reimburse me. Please don't tell me I need to file Schedule C to report this as taxable income.

I bet that the association will reimburse you when you provide them a receipt -- again, accountable plan.

"If no documentation is kept regarding expenses, then the entire $700 would be taxable income."

I disagree. The transaction is what it is, regardless of documentation. Of course you want documentation in the event that the IRS comes asking questions, like an audit where they do a bank deposit analysis and wonder where that money came from. But not having specific documentation does not mean the expenses don't exist.

Perhaps I was a bit hasty in writing that. You stated that better than I did. But I would much rather help the client put together some documenation now (in part to see how much expenses there really is) than wait for the IRS to come knocking and have to scramble to put some numbers together.

I would expect that the organization has some reasonable method of coming to that number. Maybe there was an IRS audit or letter ruling, and that's why they say it's not taxable.

Information from the organization may help; then again, it could be totally useless. How many times have you heard clients that got recruited into MLMs say that they were told they could deduct items that they really can't (such as all the make-up they use everyday as they're advertising the product)?

Bill

[Luis Mopeo]

That IS the definition of an accountable plan -- you provide receipts and they reimburse you. I would agree that this doesn't get reported on your tax return.

I bet that the association will reimburse you when you provide them a receipt -- again, accountable plan.

Information from the organization may help; then again, it could be totally useless. How many times have you heard clients that got recruited into MLMs say that they were told they could deduct items that they really can't (such as all the make-up they use everyday as they're advertising the product)?

Bill

It seems you're using some generic definition of "accountable plan." I was using the tax definition of accountable plan that applies specifically to employees and has documentation and timing rules in place that allow an employer to reimburse expenses if certain conditions are met. [Reg. 1.62-2(c)(2)] See page 8-12 of TTB.

That's my point. People are reading too much into this.

The reimbursement by an organization (most probably under IRC 501) of money that represents the expenses of housing a student does not need to be blown out of proportion. The family takes the student, the family gets reimbursed. Done. I think a lot of people are seriously overcomplicating this by calling for Schedule C, employee accountable plan reimbursement rules, multi-form tax reporting, etc.

I realize we see the world through the lens of tax returns, but sometimes things happen that don't require us to file a pile of paperwork. Some things can come and go without us fretting over which form to file.

I don't get the similarity between housing a student as part of a foreign language educational program and engaging in a questionable multi-level marketing scheme.

[Bill Tubbs]

The reimbursement by an organization (most probably under IRC 501) of money that represents the expenses of housing a student does not need to be blown out of proportion.

That is exactly my point. [bold]How much[/bold] expense does the family incur by housing a student?? Someone has to calculate this, and I prefer to calculate it sooner rather than later. If family only incurred $500 of expenses, then the overage of $200 would be taxable someplace. [Luis -- I hope you'd agree with that statement.]

The more I think about this... is the organization really reimbursing the expenses of housing the student if they are just paying a flat rate per student per month, WITHOUT the housing family providing the organization with any substantiation of expenses? (Which is quite different than when you get reimbursed for specific expenses that you incur and substantiate.) The intent of the $700 may be to cover expenses, but without any substantiation to the organization, I would see the entire $700 being reportable as Other Income (Hobby), and any expenses that can be calculated then be deductible on Sch A as Hobby Expense.

I don't get the similarity between housing a student as part of a foreign language educational program and engaging in a questionable multi-level marketing scheme.

My point here was the family cannot just take as gospel whatever the organization says as far as whether the $700 is taxable or how to calculate the expenses to offset the $700 of income -- UNLESS the organization has a PLR.

Bill

[Luis Mopeo]

How much expense does the family incur by housing a student?? Someone has to calculate this, and I prefer to calculate it sooner rather than later. If family only incurred $500 of expenses, then the overage of $200 would be taxable someplace. [Luis -- I hope you'd agree with that statement.]

How much expense does the family incur? Well, $700 per month comes out to $23 a day for room, board, transportation, entertainment, and include miscellaneous.

The low-cost federal per diem is $141 a day for room and board for crying out loud.

To be honest I'm baffled at the suggestion that a student can be supported with room and meals for $17 a day. As I said, I think you're trying to turn this into something it's not.