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Divorced taxpayer received a pay out from Netflix, her

former spouse's employer. Her former...
divorced taxpayer received a pay out from Netflix, her former spouse's employer. Her former spouse earned these shares while he was an employee of Netflix. She received this money as part of the divorce settlement. The amount, $1,355,638.26, is included box #7, nonemployee compensation of form 1099-MISC. The taxpayer has a W-2 of about $200,000, so the SE tax would be about 2.9% or about $36,300. The spouse earned those shares while working as an employee, and the taxpayer never performed any nonemployee services for Netflix.
Is there authority you know of that could justify the argument the taxpayer in question here is not liable for self-employment tax?
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Answered in 17 minutes by:
3/17/2018
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,014
Experience: 35 years tax experience, including four years at a Big 4 firm.
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Hi from Just Answer. I'm PDtax, and can assist.

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It sounds like this is a property settlement incident to divorce. As such, the agreement between the parties will dictate the character of the payout to your client, property settlement or alimony.

In either case, this will not be subject to self employment tax. In fact, it might not be taxable to your client at all, but instead be taxable to her ex-spouse and simply remitted to your client.

First, determine the character of the payout. Netflix does not have RSUs or similar compensation (like Amazon), but they do have a stock option plan, which this sounds like is the source. If that's the case, there may be tax consequences on the sale, but again, the agreement or decree will dictate treatment.

Then, determine property settlement or the potential lump sum alimony settlement. This is rare, but still used, rarely because of the potential for recapture tax.

I hope this covers the topic for you. If so, please rate my assistance with positive feedback, five stars being best, ***** ***** your request. I'm PDtax.

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Customer reply replied 1 month ago
I am aware that property settlements incident to divorce are not generally taxable. Do you have an authoratitive citation to support that? How do I counter the presumption that nonemployee compensation is subject so SE tax?
I believe the 1099-misc was issued in error. This is not applicable to any of the potential tax treatments.With 1099-misc errors, we report then as the form suggests, then create an expense such as "nontaxable divorce distribution, 1099 received in error from SSN ---------".Since I don't know what kind of payment this is, researching isn't applicable. If you need this researched, please advise what this payment is really for. I'll post an offer for the research time.If that's not needed, positive feedback is appreciated, five stars being best. I'm PDtax.
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,014
Experience: 35 years tax experience, including four years at a Big 4 firm.
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