2007 Self Employment Income reported as "Other Income"

Where did "this income" come from? The parent? Parent's trust? The state? The feds? An insurance company? A sibling?

The 1099 was from her mother as an individual taxpayer.

If she is operating as an independent contractor caring for a parent then the payments received are self-employment income (Schedule C) and self-employment taxes must be paid. In addition, she should have a caregiver contract with the parent. This will establish that the payments are not gifts and that they are payment for services. In addition, the parent should provide a 1099-MISC to the caregiver (the amount is $600 or more for the year) with a copy going to the IRS.

The tax return should be amended.

There is no 1099-MISC reporting in this case. You only issue 1099-MISC for payments made in the course of running a business. The parent is not running a business. Income is still reportable by recipient.

Ira Smilovitz

payments made in the course of running a business. The parent is not running a business. Income is still reportable by recipient.

Yes I know that. The reason I believe that one should be issued is to show that this is not a gift transaction and that actual services are being performed.

This is not an issue of a refund beyond the statute of limitation. There is no refund. The question is whether she should file an amended return and pay the SE tax. The statute of limitation that you refer to (IRC Sec. 6501) limits the IRS ability to assess and collect back taxes and limits the taxpayer ability to obtain a refund for a closed year. Nothing in there about relieving the t/p from correcting an understatement of taxes paid. There is nothing the IRS can do to assess and collect for a closed year if the t/p fails to amend the closed year return.

In this case, taxes were underpaid in 2007. The t/p is obligated to amend the 2007 return. Should she decide not to amend, there is nothing the IRS can do about it. If she wants credit in the SSA database for

Well, maybe not nothing. I have a recollection of a case where the IRS failed to go after a rather large amount of tax due, and the statute of limitations expired on it. So they issued a 1099 on the amount of tax, and taxed the person on the cancellation of that debt. It's not quite the same, but it's more than nothing.

The 1099 would have to be issued in the year that the SoL expired (because that's the year the debt was canceled), right? So if the IRS waited longer than that, could it get anything? (An argument might be made that there was cancellation of debt income in the year the SoL expired, so the tax on that expired after another SoL period, so there would be cascading 1099s each based on the tax on the previous one.)

Seth

That is interesting... Last week the IRS allowed me to amend my 2008 return to correct a 1116; not changing the 2008 taxes. I was surprised because it was more than 3 years, but maybe there was no statute of limitation because I wasn't trying to obtain a refund?

You can file or amend a return at any time. That has nothing to do with the statute of limitations.

The statute of limitations, as it affects taxpayers, only limits the time for asking for a refund of taxes you previously paid.

doesn't the filing of an amended return restart the statute of limitations, giving the IRS another potential bite at the apple?

No. It might start the clock on new information you disclose. But as to information formerly disclosed, it should not give them another opportunity to go after the taxpayer.

Thank you. That is not the "lore" I remember from the past, so I looked for a cite for my and others' reference:

Amended returns do not extend the original 3-year period. Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934).

So the issue is whether amending the return makes financial sense. Income was about 40k. So 15.3% tax on 92.35% of that so 5.6k. Taxpayer probably in 15% tax bracket so deduction for half of SE tax gives back about $423. So net is about 5k. The interest from 4/15/2008 to now has got to be around 1k. So total is 6k plus cost of filing the amended return.

How much extra would 40k of income on her SS record give her?

about 40k. So 15.3% tax on 92.35% of that so 5.6k. Taxpayer probably in 15% tax bracket so deduction for half of SE tax gives back about $423. So net is about 5k. The interest from 4/15/2008 to now has got to be around 1k. So total is 6k plus cost of filing the amended return.

There are two problems that haven't been mentioned. I'm working from memory here and don't have time to research, but I do know that what I'm saying was true when I dealt with these issues at the IRS, and I seriously doubt that the law has changed.

1. The IRS cannot keep money unless it can assess a liability. If the taxpayer files a return and reports and pays additional tax it will eventually get refunded because the assessment statute had expired.
2. If you don't report income from self-employment by the original 4/15 statute for the year, (unsure about extended due dates), you get no SS earnings credit even if you later file and report.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

I have a variant on that. Filed an amended return in 2012 which reduced my self-employment tax for 2010. IRS processed the amendment and sent me a check. I then received a letter from Social Security saying that they reduced my SS earnings record for 2010.

Don EA in Upstate NY

was about 40k. So 15.3% tax on 92.35% of that so 5.6k. Taxpayer probably in

here and don't have time to research, but I do know that what I'm saying was true when I dealt with these issues at the IRS, and I seriously doubt that the law has changed.

taxpayer files a return and reports and pays additional tax it will eventually get refunded because the assessment statute had expired.

statute for the year, (unsure about extended due dates), you get no SS earnings credit even if you later file and report.

I forgot about the deadline for reporting SS earnings. The law is hard coded in the Soc Sec Act (42 USC 405): 3 years, 3 months and 15 days after the close of the calendar year to report earnings. I don't think there is anything in there about extensions.

As to payment of back taxes: I believe the rule allows you to file and pay back taxes looking back 10 years. I don't have a citation handy.

Just want to double-check I'm interpreting correctly what you are saying...

If you're a sole proprietor and you put your return on extension, you will forever lose SS credit for your self-employment tax, even if you file before the extended due date?

If so, is the proper inference to draw that if you are a sole prop and you'd otherwise have to put your return on extension (say you're waiting on a K-1 or something like that) you should file your best estimate (especially as to your SE income) by April 15th and then file an amended return once all the late documents have come in?

Never mind. I read Alan's post more closely and see it is 3 years, 3 months, and 15 days from the close of the tax year. I was misreading Phil's statement about "by the original 4/15 statute for the year" to mean "by the filing date for the year" and not what he really meant, which was "by the statute of limitations date for the year".