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Mark D
Mark D, Enrolled Agent
Category: Tax
Satisfied Customers: 1304
Experience:  MBA, EA, Specializing in Business and Individual Tax Returns and Issues
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We need case law showing when a commission is earned. Our ...

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We need case law showing when a commission is earned. Our company pays our independent contractor employees (1099) by placing their pay into an employer sponsored payroll account (savings/checking account in their name.)    We need precedence showing exactly when that money was earned and how that decision was made. We are using this to qualify as "Earned Income" in real estate transactions and want to show past cases showing that the money was "Officially" earned when it was paid from the company to the employee.
Submitted: 9 years ago.
Category: Tax
Expert:  Anne_C replied 9 years ago.

Dear Mr. Hayes:

Thank you for asking JustAnswer for assistance.

  • What state are you in?
  • Are your independent contractors in the real estate profession?
  • What are the commissions being earned on?
  • Are you using this to show earned income for tax purposes, or for qualifying on a loan, or something else? If so, what?
Customer: replied 9 years ago.
Reply to Anne_C's Post: Anne,

My company is is Florida but we do business in all states. (www.BuyersAccount.Com)

Most of our Independent contractors are not in the real estate profession but some might be.

The commissions are earned on the sale of a membership to the Owners Alliance (www.ownersalliance.org)

Our independent dealers use the money to cover their down payment and closing costs on the purchase of a home. The job and money is not used to help them qualify for a mortgage but is used like realtors use "earned income" on their own purchases.

We have a legal opinion about our program and have been vetted through the courts to prove its legitimacy.

We are pushing for lender acceptance and now just need to show that the money they earn from my company is a legitimate commission that can be used to cover their down payment and closing costs.

XXXXX XXXXX
xxx-xxx-xxxx
Customer: replied 9 years ago.
Anne,
Are you able to address our issue regarding "earned Income"?
Do you need more information or time?

Thank you, XXXXX
Expert:  Anne_C replied 9 years ago.

Dear Mr. Hayes:

I am sorry, but apparently for computer reasons, your question was no longer showing up on my list of active questions.

I am have looked at both of your websites, and I think your question would be better answered by JustAnswer's Tax experts. I am going to "Opt Out" and refer the question to that section.

Expert:  Mark D replied 9 years ago.

David,

IRC Section 446(a) deals with general rules for accounting methods, which I think would apply in you case in determining when the income is recognized. This section basically states that a taxpayer may chose an approved method of accounting unless that method does not accurately reflect the taxpayer's income. Your method is basically the cash method of accounting, recognizing the expense and income when payed/received. There have been cases where the IRS has overturned accounting methods (and upheld by a tax court) due to income not being accurately reflected by the accounting method used.

I think your main issue is proving that you are paying your employees and contractors for services rendered. If you can prove this, you can reflect the income as earned when it was received on a cash basis.

Edit: On a side note, I looked at your website and see you are using the terms "employee" and "W9" together. You may want to correct your language for legal purposes as you may be setting yourself up for unemployment and worker's comp claims by calling people "employees". The alternative would be "independent contractor". This is not legal advice, just an observation...

http://www.timbertax.org/research/irc/sections/Sec446.asp

http://www.aicpa.org/pubs/jofa/feb2007/taxcases.htm

Regards,

Mark D

 

Mark D, Enrolled Agent
Category: Tax
Satisfied Customers: 1304
Experience: MBA, EA, Specializing in Business and Individual Tax Returns and Issues
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