Author Could Not Divide Payments From Her Publisher to Exclude Portion from Self-Employment Income

An author attempted to argue that income from her publisher should be divided between income from writing, which would be subject to self-employment tax, and income related to other items covered by her contract are not subject to self-employment.  However, in the case of Slaugther v. Commissioner, TC Memo 2019-65 the Tax Court did not agree with her view.

The taxpayer in question is a well-known and successful author.  During the years involved in this case, the taxpayer spent from 12 to 15 weeks engaged in writing.  In addition, during those years she spent additional time building as a brand author.  The opinion describes a brand author as “one who provides prestige or reliable profits to a publishing house.”  She spent significant additional time meeting with publishers, agents, media contacts and others to “protect and further her status as a brand author.”

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PMTA Holds Payments to Farmers Under MFP Program to Compensate for Tariff Issues is Taxable Income and Part of Self-Employment Income

The IRS has addressed the taxation of payments made to farmers under a trade aid package (the Market Facilitation Program or MFP) in PMTA 2018-021.  The MFP program gives direct payment to producers of certain crops that have been adversely affected by tariffs.

The memo deals with both the issue of whether such payments are part of gross income under IRC §61 and as self-employment income under IRC §1402.

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Law Firm Members Not Allowed to Treat Income in Excess of Reasonable Compensation Guaranteed Payments as Not Self-Employment Income

Some additional guidance has emerged on the self-employment tax status of member-managers of an PLLC in the case of Castigliola, et al v. Commissioner, TC Memo 2017‑62. 

Like the members in the case of Renkemeyer, Campbell, & Weaver, LLP v. Commissioner, 136 TC 137 (2011) the individual members in this case were attorneys who practiced in a law firm.  However, unlike the attorneys in Renkemeyer, these attorneys did not claim that all income from the law firm was not subject to self-employment tax.

Rather, the attorneys had consulted with an experienced CPA well versed in tax matters and agreed to pay out guaranteed payments to each member that was equivalent to a reasonable salary for an attorney of that individual’s experience level in their locality.  The guaranteed payments were reported as self-employment income and self-employment tax was paid on those amounts.  To the extent the law firm had income in excess of the guaranteed payments, those amounts flowing out on the K-1s were treated as income not subject to self-employment tax.

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Surgeon Found to Be Investor in Surgical Center LLC He Performed Surgeries In, Income Not Subject to Self-Employment Tax

A case that presented the reverse situation that the Tax Court decided in the 2011 case of Renkemeyer, Campbell & Weaver, LLP v. Commissioner on the issue of the self-employment tax liabilities of members of LLC was decided in the case of Hardy v. CommissionerTC Memo 2017-16.

The case involved a surgeon that had purchased a 12.5% interest in an LLC that operated a surgery center.  The surgeon did not actively participate in the management or operation of the center, but only performed a minority of his surgeries in the center, on similar terms as he worked in centers and hospitals in which he had no ownership interest.

(And, yes, this is the same case as covered in the other entry I wrote this day, but dealing with an additional issue.)

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Partners May Not Be Treated As Employees of Disregarded Entities Owned by Partnership

If a partnership owns an LLC it treats as a disregarded entity under the check the box rules, may partners of the partnership be treated as employees of the disregarded entity, receiving a W-2 and obtaining certain tax beneficial fringe benefits open to employee but not partners?  The IRS says the answer has always been no, but since some read the existing regulations otherwise the agency has issued Temporary Regulation §301.7701-2T(e)(8)(i) (TD 9766) and an identical proposed regulation (REG-114307-15).

The “check the box” provisions found in Reg. §301.7701-2 were created to deal with state law entities that had no direct equivalent under federal law (with the prime example being limited liability companies (LLCs)).  Under those rules, the taxpayer elects to treat the entity “as if” it was an entity the IRC has a treatment for, picking from a list that depends on the number of owners.  

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Eighth Circuit Overturns Tax Court Ruling that CRP Payments Were Self-Employment Income When Paid to a Non-Farmer, IRS Announces Nonacquiesence

An IRS Tax Court victory in the case of Morehouse v. Commissioner, ( original decision at 14 TC No. 16), was overturned on appeal in a split decisions by a panel of the Eighth Circuit in Case No. 13-3110, 114 AFTR 2d ¶ 2014-5340.  

The case in question involved whether payments received under the U.S. Department of Agriculture’s Conservation Reserve Program (CRP) represented income subject to the self-employment tax.  

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Holder of Small Interest in Oil and Gas Working Interest Found Subject to Self-Employment Tax Despite Being "Merely" an Investor

A taxpayer’s liability for self-employment tax related to income from working interests in oil and gas wells was the issue in the case of Methvin v. Commissioner, T.C. Memo 2015-81.

This is not a case of David being out there drilling for oil—rather, he had simply been acquiring working interests in several oil and gas ventures as investments.  His interests were never more a small amount in each venture.  David’s interactions were basically to invest funds and then receive his checks for his share of revenues less expenses.  He did not perform any services with regard to the wells.

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