Deduct Moving Expenses

[Corduroy Frog]

In this new age, only military personnel can deduct moving expenses (I think.  Correct me if I am wrong).

A taxpayer from Nashville moved to Huntsville Alabama to take a new job.  Prior to employment, his new employer gave him $10,000 to move, and issued him a 1099-MISC for $10,000.

The $10,000 was to pay for moving expenses, and he was allowed to apply expenses against the $10,000 in revenue.  He claimed the revenue on a Schedule C, as well as the expenses appertaining thereunto.

Is this allowed? 

The question is NOT whether the IRS likes it or not, nor is the question whether it is ethical.  The only question is whether it is allowable.  The deductions are not business expenses, but personal expenses.  But the revenue is claimed as well, and is not business revenue.

Not my customer.  But a CPA at the new employer endorsed the idea.

 

[DANRVAN]

2 hours ago, Corduroy Frog said:

Not my customer.  But a CPA at the new employer endorsed the idea.

To be honest, I question why you are asking this question, as I find it hard to believe any CPA would "endorse" this idea.  If not your client why are you even asking?

Basic research will tell you the payment by new employer is included as wages and not deductible to employee in any case.

[Corduroy Frog]

Dan, to specifically answer your question, he is now my employee.  I saw this in reviewing a prior year return.

I understand there are problems with a 1099 and a W-2 for the same year.  The 1099 payment was made prior to start date of employment.

I was told the CPA did endorse the plan.  There are times I am mistaken but don't deal in untruths.

 

[Corduroy Frog]

Correction.  My edit timed out.  He is not my employee.  He is my customer.

Dan, thank you for your response.  You are quite authoritative.

[Lee B]

14 hours ago, Corduroy Frog said:

 

Not my customer.  But a CPA at the new employer endorsed the idea.

 

 

10 hours ago, Corduroy Frog said:

Correction.  My edit timed out.  He is not my employee.  He is my customer.

 

14 hours ago, Corduroy Frog said:

I

A taxpayer from Nashville moved to Huntsville Alabama to take a new job.  Prior to employment, his new employer gave him $10,000 to move, and issued him a 1099-MISC for $10,000.

The $10,000 was to pay for moving expenses, and he was allowed to apply expenses against the $10,000 in revenue.  He claimed the revenue on a Schedule C, as well as the expenses . . . . 

 

 

11 hours ago, Corduroy Frog said:

  I saw this in reviewing a prior year return.

 

The employer mishandled the 1099/W 2 situation and your clients prior year return reporting on Schedule C is wrong.

The prior year return should be amended and your client should ask his employer to correct the prior year's 1099 and the W 2.

More than likely the employer will not do that, in which case the $10,000 should be reported as other SE income with no expense deduction.

[Lynn EA USTCP in Louisiana]

Will a 1099-MISC be subject to SE tax?

 

[BulldogTom]

3 hours ago, Lynn EA USTCP in Louisiana said:

Will a 1099-MISC be subject to SE tax?

IRS would say it was in connection with the work and therefore wages subject to payroll taxes.   If the employer is not paying those taxes, the employee should.   However, the correct approach would be to file an SS-8 for a determination from the IRS.      

Could you argue that the employee is not in the business of moving and therefore not subject to SE tax?  Yes.   But the substance of the transaction is going to make that a moot point if the IRS audits, because it should have been properly classified as wages, which would probably be the result of an SS-8 determination, so I don't think I could take that position on a return.

Putting it on the C is convenient but most likely improper because there is no business associated with the income.   Taking deductions against the income for the cost of the move is definitely improper.   The client should be advised of this and given the option to amend the return that includes an SS-8.   Client's choice on how to proceed.   We only advise the proper way to file.

In ATX, you can code a 1099 as subject to SE tax.  If it was my client and I got that 1099MISC, that is probably how I would have proceeded assuming the client did not want to go with the SS-8.

Tom
Longview, TX 

[DANRVAN]

9 hours ago, Lynn EA USTCP in Louisiana said:

Will a 1099-MISC be subject to SE tax?

I would not subject it to SE tax if 'E'R refused to correct the W-2.  The payment was more of a taxable benefit rather than wages, even though ss should have been withheld.

[Corduroy Frog]

Good points from this group.

I wonder if it is my responsibility to file an amended return for the error.  Probably my ethical responsibility to inform him it should be filed, but I don't think I should be required to do so.

[Lion EA]

Circ. 230:

§ 10.21 Knowledge of client’s omission. A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission.

[mcbreck]

14 hours ago, DANRVAN said:

I would not subject it to SE tax if 'E'R refused to correct the W-2.  The payment was more of a taxable benefit rather than wages, even though ss should have been withheld.

I've seen the argument as: A signing bonus is paid to employees and reported on the W2 because they begin working imminently or they sign a contract. An incentive payment is paid to people you want to hire in the future and reported on 1099. For example if you pay it to me and I don't show up to work for 1-2 months, I'm not an employee.

 

My brother was laid off and received a huge package (18 months salary) with the agreement he'd pay most back if he got a job within 6 months. He receive an "incentive payment" at three months from a company which declared he'd be hired at a future date that met his 6 month period. Tom specifically wrote "prior to employment" so how could it be on a W2 if they aren't an employee?

 

 

 

[Lion EA]

Would he have received $10,000 from that company if he weren't moving to be an employee? It's wages.