Use of Per Diem Rates on Schedule C


This is a correction to a message I submitted last night (which hasn't
been published yet). Please delete the original message and use this
one instead.
Following her graduation from college, my daughter worked in Argentina
for four months on a research project for Cornell. For this
assignment she was not hired as an employee but was paid an up-front
"stipend" of $4500 and told it would have to cover all her expenses
other than airfare. Her agreement with the school was that any money
left over from the $4500 she could keep as income. She proceeded to
incur approximately $3500 in expenses (food, lodging, supplies, etc.),
which left her with a net income of approximately $1000. She received
a 1099-MISC from the school showing $4500 of "other income" (box 3).
Based on what I have learned, it seems she needs to fill out Schedule
C to report her expenses and to put the $1000 of net income on form
1040. She also would need to pay self-employment tax. That's all
fine. But in reading the instructions for schedule C, I see that as
an alternative to reporting actual meal and incidental expenses, she
can elect to report these expenses using a per diem rate that is
published by the State Dept. While the normal per diem rate for meals
and incidentals in the US is around $39 per day, the per diem rate for
Argentina is listed as $79 per day. If my daughter uses this per diem
rate rather than her actual meal and incidental expense (even reducing
the per diem by 50%, as required), she will end up with a net loss of
about $700 rather than income of $1000. That's because her actual
daily meal expense was well below the per diem rate (she bought and
cooked her own food in the apartment where she stayed). Can she
really legitimately do this, or is there something in the code I am
missing? I don't see anything that says you can't use the per diem
rate if turns out to be much higher than actual expense. If she does
do this, can she report a loss on the 1040 or does she get to carry it
over or does the loss just get ignored?
Reply to
dick.schofield
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Note that the payment was in box 3, not in box 7. Was she really performing some service for Cornell as an individual contractor (subject to SE), or was she awarded a grant to do independent study for her own benefit?
Reply to
Don Priebe
No, she was simply paid as a contractor to do the work. She had already graduated from college (a different school, incidentally, from the one paying her to do this work), so she was no longer a student. She was hired by the University to gather data on a specific breed of bird and to provide that data to the University for use by other people in their bird research. She herself was not pursuing a degree or doing independent research of her own for the purpose of college credit or to publish any papers of her own.
Reply to
dick.schofield
On Jan 25, 9:46 am, "dick.schofield" wrote:
This payment is in the nature of a "non-accountable reimbursement." If she had been an employee, it would go in box 1 of the W-2, and she would have to claim the deductions as miscellaneous itemized deductions on Form 2106, leading to Schedule A. Since she isn't an employee, Form 1099-MISC is the appropriate form to use. I think that box 3 is the appropriate box in this case, because she was not retained as a research associate; she was merely given a stipend to cover expenses. Now, if she did similar work for others for compensation, she would have a Schedule C on which to put this. But I think that the appropriate treatment is to file Form 2106, report the stipend as reimbursement there and claim the expenses for meals using the Per Diem rates for the city in Argentina (the rate can vary by month), lodging, and other covered expenses. Any excess deduction would be a miscellaneous itemized deduction, and probably not usable. if the reimbursement were to exceed the expenses, the difference would go to line 21 of Form 1040.
Reply to
Tom Healy CPA
Actually, she did an earlier project for the same school doing substantially the same work - but this was in the United States in the same location as the school, and for this project (which lasted two months), she was actually put on the payroll of the university, paid W2 wages, and received a proper W2. Why they treated the Argentina project differently, I don't know, as the work was virtually the same. Perhaps it had something to do with the federal grant which funded both projects for the school.
Reply to
dick.schofield
Why they treated it differently: Tax avoidance.
The only question is whether the treatment is proper considering all the facts. That is what some of us have doubts about.
Reply to
D. Stussy
The instructions for Form 2106 state that it is only for use by employees. She was not an employee.
Reply to
rwmm
Schedule C on which to put this.
She did do similar work (in fact the same work) earlier in the year for the same school in the US. But that time they hired her as an employee and paid her W2 wages. Since the work she was doing in Argentina was the same kind of work she had done earlier in the year as a W2 employee, would that make it more appropriate to report her expenses on a Schedule C? As I said in another post, the instructions for Form 2106 clearly indicate that it is only supposed to be used by employees.
Reply to
rwmm
Based on this description this is an informal side job which must be reported on Schedule C. See
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,,id5963,00.html There is no rule against reporting a one-off job on Schedule C in fact it is usually a requirement if there is no employment relationship.
I personally would be comfortable with taking 50% of the Argentina per diem as a Schedule C expense, based on the 4 month period of performance being less than a year, and thus constituting a temporary assignment.
I do not see a problem here.
Steve
Reply to
Steve Pope

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