Barber Shop Space

[skhyatt]

Solomon

Did you get a chance to look up that PLR? I'm wondering if I should even be referencing it. Just wondering if the part quoted toward the end, where it talks about "booth rental" not really falling in the meaning of "rents" might pertain to a barbershop situation??? Maybe I'm way off on that?

[Black Bart]

Yuk-yuk

...I don't think I would vote for Sch E. I would think that it would go on Sch C...Interested in hearing what others have to say.

No offense Sky, and you may be perfectly correct, but the fact that we even have to debate the issue just goes to show how far removed from reality the IRS' view of all things tax has become.

Can you imagine any other business than ours in which a person would say to another (without receiving an incredulous gap-jawed stare): "I'm renting a space to someone else. Is it rent income? What do you think?"

[DonPriebe]

Because words don't mean what they mean

Can you imagine any other business than ours in which a person would say to another (without receiving an incredulous gap-jawed stare): "I'm renting a space to someone else. Is it rent income? What do you think?"

Remember, a qualified relative doesn't have to be a relative.

Often the head of a household is not the head of a household.

Royalties generally aren't royalties.

A Simplified Employee Pension IRA is not a SIMPLE IRA.

The uniform definition of a child certainly isn't.

Tax free income can raise your taxes.

Etc.

[Bees Knees]

Can you imagine any other business than ours in which a person would say to another (without receiving an incredulous gap-jawed stare): "I'm renting a space to someone else. Is it rent income? What do you think?"

Rent is rent. The title of Schedule E is not "Rental Income." The title of Schedule C is not "Anything other than Rental Income."

Schedule E is called: "Supplemental Income and Loss (From rental real estate, etc. etc.)"

Schedule C is called: "Profit or Loss from Business"

Thus, we don't have to contort the English Language to justify putting rental income on Schedule C. "I'm renting a barber chair to someone else. Is it supplemental income (rent from real estate), or is it profit from a business?"

There, doesn't that make you feel better?

[abby]

court cases and such

All the information I found deals with deciding whether the stylist is an employee or independent contractor, not how the owner would treat the rent if the stylist is an independent contractor. There are a couple of court cases (Smith vs US and Wolfe vs US) that detail some of the finer points. One thing I noticed is that there is usually some level of expectation that a stylist follow certain protocols reflecting the expectations of the shop even if they operate independently.

An interesting footnote from the Wolfe case:

"We wish to make it clear to the IRS, to the owners of beauty and barber shops, and to persons who work in such shops belonging to others, that we are not holding that as a general rule the operators in such shops either are or are not “employees” of the owners. Operators in one shop may be “employees;” those in another shop may be “independent contractors,” and those in a third shop may actually be “tenants” of the owner with their rent based on a percentage of their income and with the owner of the shop furnishing space and perhaps other facilities. All that we hold is that the ultimate factual finding of the district court in this case is not clearly erroneous."

Also: Rev Rul 57-110 and Rev Rul 73-592 have some interesting detail.

[Black Bart]

Nit-picker

Rent is rent. The title of Schedule E is not "Rental Income." The title of Schedule C is not "Anything other than Rental Income." Thus, we don't have to contort the English Language to justify putting rental income on Schedule C.

Okay, you lawyer in tax preparer's clothing. It doesn't say "Rental Income" alright, but neither does it say "Rent is rent." What it says (on line 3) is "Rents received" and that sounds very suspiciously like income to me and the rest of the world. Now make something (contort it) out of that, by gum.

"I'm renting a barber chair to someone else. Is it supplemental income (rent from real estate)...?"

Yes it is. In fact, he didn't say they're renting barber chairs -- he said everybody furnished their own stuff. He renting a portion of real estate space inside the office just the same as if he was renting the entire office.

...doesn't that make you feel better?

No!

[Bees Knees]

Okay, you lawyer in tax preparer's clothing. It doesn't say "Rental Income" alright, but neither does it say "Rent is rent." What it says (on line 3) is "Rents received" and that sounds very suspiciously like income to me and the rest of the world. Now make something (contort it) out of that, by gum.

True, line 3 does say rents received, but line 3 is under the heading “Part I, Income or Loss From Rental Real Estate and Royalties.

Assume then, that when it says “rents received,” it is probably in the context of rents received from real estate.

Yes it is. In fact, he didn't say they're renting barber chairs -- he said everybody furnished their own stuff. He renting a portion of real estate space inside the office just the same as if he was renting the entire office.

Well, that’s a good point. Renting the little space in the room where the chair sits could be interpreted as renting real estate. However, if that’s the argument you want to make, I doubt the fee is really based on the real estate being rented. How much real estate is he renting? Maybe 6 or 7 guys could do their work in a little 7 x 10 space (70 square feet) per chair. Add the waiting room, storage, counter space, cash register up front, it might take 1,000 square feet of floor space to have a barber shop with 6 or 7 guys total (20X50 feet of floor space). The guy running the business pays $1,000 per month to rent the 1,000 square feet of store space. Is he only going to charge the other barbers $70 per month based on the same cost per square foot he is paying? I doubt it. He probably is going to charge maybe $150 per barber ($150 X 7 = $1,050) to make sure he covers his cost of leasing the store, plus he is probably going to charge another $100 for the goodwill and location each barber gets for being associated with his store. $250 per month per barber for 70 square feet of floor space is 7 times the rent he is paying per square foot to rent the entire store.

The rent the owner of the store pays is rent for real estate. The rent each individual pays is for more than just real estate. In other words, its not really renting real estate now is it? Its renting a piece of the goodwill generated by the store and the combination of 6 or 7 barbers operating under the same roof.

Call it a fee, not rent, and you’ll sleep better tonight.

[Black Bart]

Dear Muddy Waters,

Assume...when it says “rents received,” it is probably in the context of rents received from real estate.

It's in that context because it is rent received from real estate.

...I doubt the fee is really based on the real estate being rented...How much...is he renting...Maybe...a little 7 x 10 space...per chair...Add the waiting room, storage, counter space, cash register...The guy...pays $1,000...to rent...1,000 square feet...Is he only going to charge the other barbers $70 per month...I doubt it.

Goodwill, waiting room, cash register, etc.? Good grief! Listen; distinctions between direct and indirect expenses are irrelevant -- the landlord's renting out a space on the floor. If you -- as cost accountant -- convince him to designate the receipts as horse manure sales or to carve it up on the P&L as rent = goodwill = advertising income or rent = use of the sink = reduction in handsoap expense, etc., etc., that doesn't change the nature of the income -- it's still rent. Anything extra he's inclined to throw into the bargain is a discretionary courtesy/gift.

He probably is going to charge maybe $150 per barber...to make sure he covers his cost of leasing the store...he is probably going to charge another $100 for the goodwill and location each barber gets for being associated with his store...

If the barber shop's in Trump Towers he can probably get $150 each, which will cover his own rent. If it's in Hickinsticks, then maybe $70 is all he can get. He's renting a small barn for $1,000 and is sub-renting all of it he can to cut his cost. You're arguing that his rent rate and/or success/failure in covering his own rent determines the nature of the income?

The rent the owner of the store pays is rent for real estate. The rent each individual pays is for more than just real estate. In other words its not really renting real estate...

So you say -- pull out one of those famous cites. And read the bold print, third paragraph of abby's previous post.

[Bees Knees]

And A Hoochie Coochie To You Too

Guy drops by your office. Says he does taxes too. Wants to know if he can rent that extra space from you over in the corner. He’s got a desk, chair, stapler…only needs a small corner of your office.

How are you going to determine how much to charge him?

You go walk off the square footage he needs, multiply that by the price per square footage you pay for your office…that’s all your going to charge him?

Or are you also going to factor in all the phone calls your secretary has to take for him? The use of your copy machine….your coffee pot….maybe get a piece of the action when someone walks in off the street and goes over to his desk because you are with someone…etc. etc.

You going to just charge him rent? Or are you going to make him pay for the benefit he receives by taking advantage of the goodwill of your business?

Renting real estate is where you rent space. Paying a fee for all the other intangibles is not rent.