MLR

Court finds nonemployee compensation taxable

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Million Hussein was a resident of California in 2011. During this period, he held down two jobs in addition to providing caretaking services for children.

He received a W-2 from his primary job at SDH Services in 2011 with gross wages of $20,117. He also had a W-2 from the San Diego Unified School District with gross wages of $1,294.

Hussein earned an additional $3,843 for providing caretaking services. Earlier in 2011, he had applied for and received a family child care home license. The $3,843 was self-employment income, which he received from San Diego Health & Human Services.

Hussein should have picked up this entire amount as miscellaneous income either on line 21 of his 1040 return or on Schedule C, reduced by various business expenses.

But he did neither of these things, omitting the income from his return entirely. His 1040 return for 2011 was subsequently audited by the IRS. The IRS issued a deficiency notice to the taxpayer regarding the omitted income amount of $3,843.

Hussein decided to take the matter to the U.S. Tax Court.

Three months before his court case started, he signed a court document, called a stipulation of facts, in which he admitted receiving the $3,843 from San Diego Health & Human Services for providing caretaking activities.

Based on the signed stipulation of facts with no evidence or testimony to the contrary, the court found that Hussein must include the $3,843 of nonemployee compensation in gross income.

Because Hussein made no mention nor introduced any evidence of any business expenses, the entire amount was taxable (Million Hussein v. Commissioner, U.S. Tax Court, T.C. Summary Opinion 2015-59, Sept. 29, 2015).