Level 2

Not self-employment income?

Forum|Forum|5 years ago
March 10, 2021
2 replies
4 views

Client, a plumber, retired during 2019 and filed a final Form 1120 for his corporation. He performed no services during 2020.

Throughout 2020, an unrelated party paid him $600 per month to use his plumbing license. (Please don't question the ethics or legality of this. I'm not. My concern is the tax treatment, not whether it's legal to do plumbing work under with another party's license.)

The payor reported the payments on Form 1099-NEC, as nonemployee compensation. I believe this is wrong. Client/payee did no work whatsoever; he didn't even act in an advisory capacity, and he wasn't operating a trade or business in any manner. I believe the payments should be Form 1099-MISC, Box 3, not subject to SE tax.

Thoughts or opinions?

This topic has been closed for replies.

qbteachmt

Level 15

"The payor reported the payments on Form 1099-NEC, as nonemployee compensation. I believe this is wrong."

It's not wrong if they are treating it as if he did some work and we are ignoring this fact. That would make it Sched C.

It's Wrong, if the license is linked to the corporation for purposes of labor, insurance, etc, because that would not entail a 1099-NEC.

Is that listed to the SSN or FEIN?

It's not Misc, because you can't be renting out the license, and it's not royalty.

"not subject to SE tax"

So what? Apparently, they can't get away with the scam fully.

Don't yell at us; we're volunteers

P

PrimobabeAuthor

Level 2

"It's Wrong, if the license is linked to the corporation"

There's no more corporation. The entity was properly terminated, and filed a final Form 1120, for 2019.

"1099-NEC...Is that listed to the SSN or FEIN?"

Form 1099-NEC was issued to Client, using his SSN.

qbteachmt

Level 15

"an unrelated party paid him $600 per month"

Taxable, then, as business, Sched C and SE. Bob's got a point; there are "no show" jobs.

Don't yell at us; we're volunteers

BobKamman

Level 15

Forget he's a plumber. Say he's an actor. He gets paid to be the understudy for a leading man who always stays healthy. He never sets foot on stage. You think that's not self-employment, anyway? (Well, maybe he could be paid on a W-2.)

If a customer's apartment flooded, my guess is that he would have been there to prevent a claim being filed against his license and his bond. Until Congress passes a law that the first $10,200 paid for not working is excluded from income, I would tell him that's what he gets for telling his brother-in-law his SSN.

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