[jimmybwilliams]

Hi, I received an employment sign on bonus from a headhunter for taking a new job. The employment agency sent me a 1099 misc putting the amount on box 7 (non employee compensation). Now the IRS is suggesting that I might possibly owe self employment taxes. I'm not self employed. I just listed this on a sched c as I didn't know where to declare this income. It is very confusing in my opinion. Can anyone tell me what I should have done? I'm starting to wish I never got this bonus...

Thanks

[MukatA]

This income is reported on schedule C. How you will treat the 1099-Misc income, read: Your U.S. Tax Return: W2 vs 1099-Misc: Employee vs Independent Contractor.

[AtlantaTaxExpert]

Sorry, but in the eyes of the IRS, you ARE self-employed and owe SE taxes.

[jimmybwilliams]

Sorry, but in the eyes of the IRS, you ARE self-employed and owe SE taxes.

Thanks everyone for all the responses. I appreciate it.

I sent a response to the letter I received and stated I didn't think I owe SE and requested them to call me as per the letter... :(

So, any idea what will happen? I'll get a call? Surely I'll have to pay initerest and a penalty?

Thanks.

[AtlantaTaxExpert]

The IRS does NOT normally call the taxpayer.

You need to submit a rebuttal letter explaining your position and citing the appropriate portions of the Internal Revenue Code that supports your contention that you do NOT owe these taxes.

OR YOU need to call the IRS to discuss this issue. THEY will NOT initiate the call.

[jimbabwe]

Sorry, but in the eyes of the IRS, you ARE self-employed and owe SE taxes.

AtlantaTaxExpert, I beg to differ:

Section 1.1402(c)-1 of the Income Tax Regulations generally provides that
In order for an individual to have net earnings from self-employment, he must
Carry on a trade or business, either as an individual or as a member of a
Partnership. Whether he is engaged in carrying on a trade or business will
Depend upon all of the facts and circumstances in the particular case.
In considering whether an individual is engaged in a trade or business, the
United States Supreme Court has stated that “to be engaged in a trade or
business, the taxpayer must be involved in the activity with continuity and
regularity, and the taxpayer’s primary purpose for engaging in the activity must
be for income or profit. A sporadic activity…does not qualify.” Commissioner v.
Groetzinger, 480 U.S. 23, 35 (1987). The question of whether a taxpayer is
Engaged in a trade or business requires an examination of the relevant facts in
Each case. Id. At 36.

[jimmybwilliams]

AtlantaTaxExpert, I beg to differ:

Section 1.1402(c)-1 of the Income Tax Regulations generally provides that
in order for an individual to have net earnings from self-employment, he must
carry on a trade or business, either as an individual or as a member of a
partnership. Whether or not he is engaged in carrying on a trade or business will
depend upon all of the facts and circumstances in the particular case.
In considering whether an individual is engaged in a trade or business, the
United States Supreme Court has stated that “to be engaged in a trade or
business, the taxpayer must be involved in the activity with continuity and
regularity, and the taxpayer’s primary purpose for engaging in the activity must
be for income or profit. A sporadic activity…does not qualify.” Commissioner v.
Groetzinger, 480 U.S. 23, 35 (1987). The question of whether a taxpayer is
engaged in a trade or business requires an examination of the relevant facts in
each case. Id. at 36.

I sent the letter in explaining my case. The IRS didn't pursue it... I got my refund. I'm a small fish in the sea.

Jim

[AtlantaTaxExpert]

Good for you! It is rare when the IRS backs down on 1099 issues like this one.