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1099MISC Commission




Looking for Peer Validation My client works for a tire distributor. He receives a W2 from them. In addition, he receives a 1099MISC box 7 from a tire vendor that pays him a commission on the tires he sells (their brand). At first I was wondering if the commission should be re-classsified as Misc Inc, and that a corrected 1099 should be sought out. As I mull it over I have had a change in my thinking. Am I correct to think that this commission is actually nonemployee wages, reportable on Sch C-EZ and subject to SE? He is acting as a sales agent for the vendor regardless of the fact that is a commission. He is NOT an employee of the vendor. This is not Misc Income (box 3). Any comments would be greatly appreciated.

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agree, sched C subject to SE taxes

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Thanks. I'm sure the client won't be happy but I'll sleep well knowing that it's correct.

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Whoa, what is that term people use in the auto industry for events like this. Aren't these some sort of incentives for selling tires. I recall that when selling cars, these are not taxable for SE Tax. Found it: Discussion: Car salesman awards from mfg and see if your person fits Riley's answer.

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D&T - I've read Rev. Rul. 1970-337 and Publication 3204 but I'm not sure if it's applicable. There's a fuzzy area. The Rev Ruling states 'bonuses paid by a manufacturing company to a salesman employed by dealers enagaged in the selling of the company's products are not wages for purposes of FICA, FUTA, and income tax witholding". No where in the RR does it make mention of the auto industry, auto dealers, or automobiles. In my opinion, that ruling would encompass any manufacturer incentive from any industry. In which case, my client - the tire salesman, would not have to consider this commission subject to SE. Yet the Pub clearing states that it applies only to the automobile industry and auto dealers. Could the agruement be make for auto tires?

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To me it is an incentive, a prize or award but not entered in Block 3 of the 1099MISC, or at least that is what I think it is. At first I had qualms because the saleman might sell six brands of tires and only be rewarded by one company, but in the auto world today, the dealer where girlfriend bought her Hyundai also sells Subarus and Pontiacs. I do think Rev Rulings hold more authority than IRS Publications, and this would be sufficient authority to take the position.

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I stand corrected. Also agree with D&T that the Rev Rul controls, not the Pub. The Rev Rul provides the authority and is not limited to automobile salesmen.

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That resolves any confusion I may of had. I'll report the 1099 income as 'other' and cite the rev ruling in an attached statement. I am thankful, humbled, and depressed all in one. Thankful for the help. D&T, Glm, & Reilly (in absentia) Humbled by the fact that for as much as I think I know, there is a vast wealth of knowledge and wisdom that others possess and I am happy to learn. Depressed when I realize that I need to tack on another hour (that now makes 3) to my nightly study program for my EA exam in September so I can use this board as real-life practical study reference. Thanks again.

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The spiffs paid by the manufacturer (directly to the salesperson or paid to the dealer who then pays the salesperson) are neither wages under Sec. 3121 or self-employment income under Sec. 1402. The spiffs are merely income that is reported on Form 1040, line 21. Spiffs paid by the dealer/employer through their own spiff program (as opposed to a manufactuer's program) are probably wages under Sec. 3121.

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I agree--line 21. If a corrected 1099-MISC can't be obtained, just report the income on Sch C, deduct the same amount in Other Expenses, and enter the amount on Line 21, Form 1040.

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Deb - Would it be neccesary to report it on Sch C and back it out? I was just to going to report it on line 21 with a statement referencing the Rev Ruling. In the statement I will state that a corrected 1099 has been requested but not yet received.

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I would not hold your breath waiting for Goodyear, Michelin etc to issue a correction. Put it on Line 21 and if need be, attach a statement that explaining the 'spiff' [thanks Ex-IRS for recalling the term], citing the Revenue Ruling if you feel your client hates IRS letters. If one comes, then both of you can rail about IRS people who can't read. When you have both the facts and the law on your side, pound them! Seriously, I doubt I have seen five such letters in the last 24 years.

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1. Spiff = Sales Promotion Incentive Fund (general) 2. Spiff = Special Payment Incentive for Fast Sales (RadioShack)

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See also Publication Pub. 525 page 31 regarding "Other Income" Manufacturer Incentive Payments. The publication clearly states that incentives payments should be reported on Form 1040, line 21 whether or not received from the manufacturer or through the dealership. In conjunction with prior responses, these type of incentive payments should not be considered wages subject to SE.

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Would a finance manager at a car dealership who sells warranties at the time of the sale also fall under this ruling? She has received 1099misc box 7 for this income from Chase Financial Services, and I have put this on Sch C but perhaps it should be amended to Line 21?

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"...I do think Rev Rulings hold more authority than IRS Publications." As a matter of administrative law (APA), no. Both are mere opinion of the dang fed agency and not subject to rulemaking. But statements in IRS Pubs are most always backed up with something, even if only a Rev Rul. That's really clear, isn't it? :-)

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See letter ruling 9525003 (3/13/95). It describes the exact situation. Salesman is paid by manufacturer by way of awards or prizes (incentives) through their service as an employee of Dealership and not manufacturer. This letter ruling contradicts both RevRul 70-337 and RevRul 70-331. Those revenue rulings state that the payments are not subject to SE tax as they were remuneration for services performed for the manufacturer (or distributor) rather than the dealer. I think the RevRuls should be distinguished from the situation you bring up. Those rulings were addressing payment for services performed for the Bold textmanufacturerBold text. I think this situation is more appropriately classified as wages paid to employee for services to the dealership rather than manufacturer and that is where the difference lies. The reasoning in the Letter Ruling is that the employee is not required to perform additional services for manufacturer (or any for that matter - selling the cars/tires is services performed for the dealership) to receive the incentive awards. Maybe certain contests or prizes and awards paid by the dealerships can vary, but to me it sounds as though the type of situation you are describing is more appropriately awards that are paid solely through services performed for the dealer. It is an interesting debate, however, I think the facts and circumstances of this case point to the payment being those paid with respect to employment and subject to SE tax. Keep in mind, that IRC section 6110(j)(3) provides that Letter Rulings cannot be used or cited as precedent.

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See letter ruling 9525003 (3/13/95). It describes the exact situation. Salesman is paid by manufacturer by way of awards or prizes (incentives) through their service as an employee of Dealership and not manufacturer. This letter ruling contradicts both RevRul 70-337 and RevRul 70-331. Those revenue rulings state that the payments are not subject to SE tax as they were remuneration for services performed for the manufacturer (or distributor) rather than the dealer. I think the RevRuls should be distinguished from the situation you bring up. Those rulings were addressing payment for services performed for the Bold textmanufacturerBold text. I think this situation is more appropriately classified as wages paid to employee for services to the dealership rather than manufacturer and that is where the difference lies. The reasoning in the Letter Ruling is that the employee is not required to perform additional services for manufacturer (or any for that matter - selling the cars/tires is services performed for the dealership) to receive the incentive awards. Maybe certain contests or prizes and awards paid by the dealerships can vary, but to me it sounds as though the type of situation you are describing is more appropriately awards that are paid solely through services performed for the dealer. It is an interesting debate, however, I think the facts and circumstances of this case point to the payment being those paid with respect to employment and subject to SE tax. Keep in mind, that IRC section 6110(j)(3) provides that Letter Rulings cannot be used or cited as precedent.