Discussion:Self-employment tax for Fellowship
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Discussion Forum Index --> Tax Questions --> Self-employment tax for Fellowship
Polohippee (talk|edits) said: | 27 October 2009 |
| I had a recent law grad come into my office today to ask a question that I have not dealt with before. Although she recently graduated from law school with an offer from a large firm, she has been deferred from the firm for one year. In the interim, the firm has provided her with a "public interest fellowship". In exchange for a monthly stipend payment paid by the firm, she will work in a public interest job of her choice. She is not on the firm's payroll, so no withholding is taken. Beyond ensuring that she is working for a public-interest organization, the firm exercises no control or supervisory function. She anticipates receiving a 1099 for this income. Although it is clear that this is taxable income, is she subject to self-employment tax?
This seems like a different situation from the usual fellowship situation, where an organization gives a stipend to a non-degree-seeking, but academic, individual to finance his research without exerting any control or responsibility over the research. My main concern arises from the fact that this is not an academic context. Spiegelman v. Commissioner, 102 T.C. 394 (1994) seems to provide some guidance, holding that "the funds....were not provided to petitioner as compensation for research services, and petitioner's efforts did not economically benefit Columbia University. Petitioner performed his research and studies primarily to further his own education and training, and the fellowship grant was bestowed upon him in recognition of and in furtheranece of his pursuit of academic excellence." Has anyone else dealt with this or a similar situation? | |
| 28 October 2009 | |
| Since services are required in this instance, it does appear that SE tax would apply here. | |
| 28 October 2009 | |
| This seems very analogous to the fellowship in education. The idea is to broaden her horizons so to speak. I don't think the facts exactly have to match.
Riley posted around the same time I did, and it's wise to defer to him. However, I would reread that education case. Weren't the academic individuals also required to do research? If so, one could reason that that is no different from this lady being required to seek a public interest position. | |
| 28 October 2009 | |
| Reading from the headnotes from the Spiegelman case:
P applied for, and was awarded, a post-doctoral fellowship grant from Columbia University, which allowed him to pursue independent research. The terms of the fellowship did not require P to perform any services, and they did not otherwise contain a quid pro quo. Held, the fellowship grant is not income derived by P from a trade or business, and he is not subject to self-employment income tax on that amount. http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl522c/10/doc | |
| October 28, 2009 | |
| Since the real quid pro quo is services to be provided later for the sponsoring employer, which are merely delayed, it sounds more like a signing bonus subject to ordinary employment tax. | |
| 28 October 2009 | |
| To digress a bit - I heard a very interesting tale about a Chicago law school (don't know which one) - NONE of its' spring 2009 graduates got a job, so the school made a deal with one of the organizations that offer low cost legal services to the poor to employ the graduates. I believe money changed hands. The motivation for the law school was to keep its job statistics in good standing.
Interesting . . . | |
| 28 October 2009 | |
| Smokey, I think the big law firms are waiting for some of the commercial real estate defaults and workouts(coming soon) to at least help erase the red ink. That and a mega bankruptcy or two.. or more.
Right now, as far as bread and butter law, it's divorce and bankruptcies, and maybe a little real estate for the fools still dabbling in it. Of course, the residential foreclosures forge along. I was at one of the big law firms in town just last week. As far as I could tell, they were all luxuriating in their offices listening to Chinese language tapes someone had pirated and copied. Getting ready for the next big swindle: known in the trade as the Chinese gold rush. One of them offered me some sushi, where our dollar bill had been substituted for the seaweed wrap. | |
Polohippee (talk|edits) said: | 28 October 2009 |
| Thanks for the responses. Just to push back a little bit on the R2/CrowJD discussion, it seems at least arguable (although by no means clear) that the fellowship in Spiegelman did require services, i.e., that the recipient perform research:
"The fellowship provides funds and office space to individuals to allow them to conduct independent scientific research. The research is conducted at the Lamont-Doherty Geological Observatory. Part of the value of the fellowship is the informal discourse and the exchange of ideas with members of the professional staff at that facility and with other fellows concerning their research. The fellows choose their own subjects and determine how best to conduct their research; they do not, however, earn a degree or credit leading to a degree for their endeavors. They have no teaching or other responsibilities, and Columbia University has no legal right to, or interest in, the fruit of the recipients' labors. The fellows are not required to observe office hours, and they are not required to report to a supervisor." Although the granting institution retains no interest in the work product or any ability to guide/restrict the research, it seems like the recipient has to do research in order to receive the funds. So, 'work' is actually required but these 'services' are not owed to the fellowship provider. The situation with my client seems similar in that she is receiving money to work in a public-interest position, but the paying firm has no control over her or her work product. They merely require that she actually do public-interest work in order to receive the stipend. What she chooses to do beyond that is up to her. Thoughts? | |
