Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

My employer has offered to assign to me rights in some technology

Customer Question
as settlement for unpaid salary...
My employer has offered to assign to me rights in some technology as settlement for unpaid salary. There are no commercially viable rights in existence yet. A patent has been applied for but it is unknown if it will ever be granted. The technology is for a medical device that doesn't exist yet, and after it is developed, it is unknown if FDA would ever allow its sale.

So is the settlement taxable? Can I deduct the loss of unpaid salary?
Submitted: 5 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 58 minutes by:
6/2/2012
Tax Professional: jgordosea, Enrolled Agent replied 5 years ago
jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
Verified

Greetings,

 

Individuals only report income as it received and only deduct expenses as they are paid.

This cash basis reporting means that there is not a loss for income items that are not received.

 

For example, a landlord does not report the rent that is due but only the rent collected. So, there is not a deduction or loss for rent not collected; but the rental income that is reported is the rent actually collected.

In the same way, the salary received is all that will be reported and there is not a loss for salary not received and that was not reported as income.

 

Compensation that is paid in property is to be included in income. The current value of the rights granted in lieu of salary is included as salary income subject to income tax.

If there is no current value of the property then this is nonqualified deferred compensation.

These rules are a bit complicated and are explained at http://www.irs.gov/businesses/corporations/article/0,,id=134878,00.html

"Under the economic benefit doctrine, if an individual receives any economic or financial benefit or property as compensation for services, the value of the benefit or property is currently includible in the individual's gross income. More specifically, the doctrine requires an employee to include in current gross income, the value of assets that have been unconditionally and irrevocably transferred as compensation into a fund for the employee's sole benefit, if the employee has a nonforfeitable interest in the fund."

 

Technically the settlement is taxable in the current year and the value of the rights will be included as part of W-2 income if the property is either transferable or not subject to a substantial risk of forfeiture. In that case, the employer is required to include the value of the property in salary and to pay employment taxes in the same manner as a cash payment.

 

Practically there may be little or no value of these rights, as described.

 

Please ask if you need clarification.

Thank you.

 

jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
Verified
jgordosea and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 5 years ago

Hello John,

So using the tax law language as you explained it...

Technically, there is no property being acquired in lieu of salary owed. There is only a right being acquired to possibly create some property through a combination of patent rights and FDA approval allowing sale of product. Either of these do stand to cause substantial risk of forfeiture due to a patent not being allowed to grant property rights in the first place, or FDA refusing to allow commercial sale of a product yet to be created based on the patent rights.

Based on this scenario, the proposed settlement in lieu of salary under the "economic benefit doctrine" does not create a taxable event.

Am I correct in my understanding?

Tax Professional: jgordosea, Enrolled Agent replied 5 years ago

Hello again,

 

That may very well be the correct interpretation.

Of course, this is a general discussion of the applicable rules and is not an opinion for a client. As such, it can not be used to avoid penalty.

 

There is a responsibility on the company to correctly and completely report the salary and to pay employment tax on compensation. So, the tax practitioner for the company will likely make the final decision on the matter.

 

You do have a correct understanding of the principles; but ultimately it will be the amount that is included in the W-2 that will be taxable to you. That is, there will not be any separate reporting requirement for you on this amount. You will just report the W-2 amounts as determined by the company.

 

Please ask if you need clarification.

Thank you.

 

 

 

 

Ask Your Own Tax Question
Customer reply replied 5 years ago

Thank you.

I am uncertain if I will receive an email record of our complete exchange. If so, I am prepared to "Accept Answer."

Tax Professional: jgordosea, Enrolled Agent replied 5 years ago

Hello again,

 

Not sure what you will get either; but you can return to the url (and can bookmark) http://www.justanswer.com/tax/6qosv-employer-offered-assign-rights-technology.html

and view again in the future

 

Thank you for the opportunity to be of service.

Ask Your Own Tax Question
Ask jgordosea Your Own Question
jgordosea
jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
3,161 Satisfied Customers
Experience: I've prepared all types of taxes since 1987.

jgordosea is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

3,161 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
As per the new tax law, the property tax deductions of 10000
As per the new tax law, the property tax deductions of 10000 is it per property or per tax payer per property?If both wife and husband file together can they claim 20000 towards one property or just 1… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Interested in information about new tax laws and their
Interested in information about new tax laws and their effect on S Corporations … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
On a NJ W-3 form, is line 3 the NJ Gross income tax withheld
On a NJ W-3 form, is line 3 the NJ Gross income tax withheld or is that supposed to include unemployment tax, FLI, SDI, etc... as well… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
New tax rules Taxpayer owns several rental properties. Does
New tax rulesTaxpayer owns several rental properties. Does the $10K tax limit apply to the real estate property tax associated with each rental property? Or is it just for schedule A state and local t… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Are non insurance covered medical expenses deductible? Are
are non insurance covered medical expenses deductible? … read more
abci168
abci168
Principal
27 satisfied customers
What is the benefit of paying property taxes due in 2018 in
What is the benefit of paying property taxes due in 2018 in advance before the end of the year 2017, if the property owned is a rental real estate and the income passes through to the individual owner… read more
Carter McBride
Carter McBride
LLM
233 satisfied customers
Under the new tax plan if my federal adjusted gross income
Under the new tax plan if my federal adjusted gross income is $77,230.00 how much are my federal taxes? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
The 2018 tax law will allow homeowners to deduct property
The 2018 tax law will allow homeowners to deduct property taxes and either income or sales taxes with a combined limit on these deductions being limited to no more than $10,000. What does this mean? w… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
A law firm (which is a Schedule C filer) has gross income of
A law firm (which is a Schedule C filer) has gross income of 1,000,000 & Net Income 0f 280,000. In the tax reform just passed, there is a 20% deduction for law firms that have income less than 315,000… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,067 satisfied customers
If my gross income is 30000, not married and no dependents,
If my gross income is 30000, not married and no dependents, can you tell me approximately how much I would expect to pay in federal tax, state tax and SS? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Is the deduction for medical expenses on Schedule A repealed
Is the deduction for medical expenses on Schedule A repealed under the new tax law & can health insurance premiums for a Schedule C proprietor still be deducted on page 1 of Form 1040?… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
My gross income is $17,105.64. Do I have to file a tax
My gross income is $17,105.64. Do I have to file a tax return? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
Tax law.FICA Tax law. W-4 and W-2 payroll tax withholding
tax law.FICA Tax law. W-4 and W-2 payroll tax withholding from wages and salaries.gross pay and take home pay. number of hours measured direct work assigned by W-4 and W-2 forms. for Medicare eligibil… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
FICA payroll employer tax withholding tax forms W-4 and W-2
FICA payroll employer tax withholding tax forms W-4 and W-2 forms. The accountant for the man I worked for from1976-1984 did not provide me with W-4 forms to complete and return to him or W-2 forms to… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Self employed, Im wondering if inmigration uses gross income
Self employed, Im wondering if inmigration uses gross income or net income for their figures... I make about 70,000 gross income on 1099 but after deductions net income is about 32,000.. we are a fami… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am 62 and currently employed with 110k w-2 income for
Hi, I am 62 and currently employed with 110k w-2 income for 2017. I unfortunately withdrew great deal of funds from 401k to remodel home. Amount i withdrew is almost 300k. I am very concerned that I a… read more
abci168
abci168
Principal
27 satisfied customers
If someone has obtained my tax return and w-2 without my
Good morning. If someone has obtained my tax return and w-2 without my permission as well as showing it to other people, is that legal? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
Can I report rental income in my tax return on a property
Can I report rental income in my tax return on a property thar is owned by my father? He does not live in the US is not a US citizen and can sign a document to allow me to receive the rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x