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Phillip B, EA
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 704
Experience:  Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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I just received a letter from the IRS questioning my filing

Customer Question

I just received a letter from the IRS questioning my filing of a 1099-MISC. They indicate that I should have filed a Schedule C and pay employment taxes. The 1099 MISC reflects Non-employee compensation and is imputed interest from a hospital that gave me an interest free medical school loan when I signed an agreement to join their hospital out of medical school. I have since become employed by the hospital. I have paid federal/state taxes but no FICA etc. How should this be reported? Thanks
Submitted: 3 years ago.
Category: Tax
Expert:  Phillip B, EA replied 3 years ago.
Thanks for choosing I will do my best to provide you with a clear and concise answer to your tax question based on the information that you have provided.

Generally, the IRS will consider anything reported on a 1099-MISC with non-employee compensation as income that is taxable for self-employment tax. However, given the fact pattern you have provided, the best argument that can be made is that this is interest income that should have been reported by the hospital on a 1099-INT on schedule B. I would (1) see if the hospital will amend the 1099-INT to reflect the fact that this is imputed interest income and (or instead, if the hospital won't change the 1099-MISC to a 1099-INT) (2) send a letter and documentation to the IRS that attests to the nature of the imputed interest income reported on form 1099-MISC.

It may not hurt to call a local enrolled agent or CPA to help you with your correspondence to the IRS in this matter. They will be able to cite code and case law in there responses, and act in your behalf (meaning you won't need to deal with them).

If there are additional questions, please reply to this answer so that I may assist you further. If this answers your question, please rate my performance between OK and Excellent so that I may receive credit for my work. Thanks for your business.
Expert:  Phillip B, EA replied 3 years ago.
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