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my daughter received a 1099MISC for an award she received while

serving as a City year...
my daughter received a 1099MISC for an award she received while serving as a City year volunteer. City Year is an educational focused nonprofit organization that unites young people of all backgrounds for a year of full time service to keep students in school and on track to graduation. Volunteers receive a modest stipend to help meet living expenses and (some) also receive awards at the end of the year to help fund college expenses. Her award was for $5350.00 and was reported in box 3 of form 1099MISC. Is this income subject to self-employment tax?
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7/3/2012
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,779
Experience: 35 years tax experience, including four years at a Big 4 firm.
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PDtax :

Hi from Just Answer.

PDtax :

I reviewed the service terms for working at CityYear.org, and it meets all the tests of employment. The recipient is paid for work, and has to adhere to work requirements like a uniform, adherence to hours and duties, and a list of other requirements.

PDtax :

Normally, Box 7, nonemployee compensation, would be used for payment to an independent contractor. That's what makes this interesting; one enrolls in CityYear.org for a lot more than just a job.

PDtax :

good afternoon.

PDtax :

And Box 3 is normally for prizes and awards, which would not be subject to self employment tax.

Customer:

The money received was for the "nicole smith can do spirit award. I believe this is why it is reported in box 3 as opposed to box 7. We reported it on line 21 as a "prize/award" and now the irs is charging se tax and I cannot find anything to support the entry!

PDtax :

that's it. as an award, no self employment tax. it's not pay for work, it is an award.

Customer:

But how do I convince the irs of this?

PDtax :

the IRS position is that the award comes from compensation for services. Can the award be won without performing the service?

Customer:

No... the service is unpaid. They work a 40 hr week on stipend but then are required to also perform hundreds of hours of volunteer service throughout the community.

PDtax :

does every volunteer receive the stipend?

PDtax :

Hmmm... I might have an idea that works to your benefit,...

Customer:

every corp member receives the 40 hour stipend. The award is only given to one individual at the end of the year. All corp members are expected to do the additional (hundreds) of hours of volunteer work as unpaid service.

PDtax :

So the reality is these awards are pay for services. IRS has a point. But they didn't count on this...

PDtax :

I would then claim the tax deductible expenses that went along with this year of service. Since your volunteer had to travel (unpaid) to a location for a year or less, certain expenses incurred will be deductible.

PDtax :

Travel to that location, including trips made in advance to secure housing, etc. would be deductible.

PDtax :

Because of the concept of a tax home, your student would not be able to deduct meals and daily travel to the school or service location. I believe the student could deduct transportation from the first location to any others during the day.

Customer:

the 1099 is from the "corporation for national and community service". Pay for attitude and commitment to community. I am not putting it on a c. I am not claiming temp living she worked the job for two years.

Customer:

All corp members did the volunteer work. Only my daughter received the award.

PDtax :

But they all get paid. Yes?

Customer:

All get paid the stipend.

PDtax :

Did she get any more $ than anyone else?

Customer:

Yes.

PDtax :

Ok. That's how to defend the position with IRS. How was her stipend reported to her?

PDtax :

How much was the stipend, how much was the award?

Customer:

$5350.00 more intended to be used toward a college degree, grad school or to pay off existing student loans. Her stipend was reported on a form w-2 with fica withholding. Minimum wage at 40 hours a week. All corp members worked in excess of 60-80 hours a week at various service projects throughout the community. Only a select few (I believe their were 4 in 2011 of the 100+ corp members doing service) that received the awards.

PDtax :

got it. The form 1099-misc allows the reporting of awards like yours as a prize, not subject to se tax. You should be successful in explaining this award was not for compensation, since not all volunteers received it, but was instead a prize.

Customer:

The award was presented to my daughter "whose spirit, idealism,can do attitude and commitment are a source of leadership and inspiration for City Year corps members and others in the community.

PDtax :

Then this should not be subject to SE tax. Once you make the same arguments you made here, you should win.

Customer:

I will just have to word our response as best I can and hope for an intelligent irs employee. I was really hoping for an IRS reference but have been unsuccessfull finding one. You have been helpful allowing me to bounce my thoughts off someone with experience. I guess you earned your fee on this one. Thanks. I will click the "excellent" tab for you.

PDtax :

Thanks from Just Answer.

PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,779
Experience: 35 years tax experience, including four years at a Big 4 firm.
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PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,779
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