IRS Audit ?

Question

I got an audit notice about a 1099-MISC from 2006. I was a courtesy officer for an apartment complex and got a 50% rent discount for living at the apartment and doing misc things around the apartment. My understanding is that this is not taxable income since it is in essence a discounted rent and I did not receieve actual compensation for it. I know some of my officer friends have submitted something to the IRS to have this taken off but I can not find what it is and they arent asnwering their phones...any suggestions or advice?

Answer 1

Housing furnished for the convenience of the employer is subject to Social Security and Medicare taxes but not income tax.  It is not something that should should up on a 1099.

Answer 2

When you work for someone and they give you something other than cash, it is still considered income by the IRS.  In essence, let's say rent is $1,000 per month.  If they give you $2,000 per month plus cut your rent in half, it is just like giving you $2,500 per month and charging full rent.  Just because they decided to do it the one way doesn't mean you get to save on taxes according to the IRS.  If that were the case, you'd see all sorts of 'bartering' to save people money.  Busineeses would buy large apartment buildings near their factories and give away free rent in exchange for having to pay salaries and the IRS would be losing out on tons on tax.  The IRS wouldn't go for that.

What you were supposed to do is include this amount on your tax return.  The IRS has done this for you and probably sent you a bill for the difference between what you should have paid and what you did pay, plus some interest, correct?

See Fringe Benefits on page 4 of the Publicaton 525 (link below).  If the apartment complex otherwise gave you a W-2, they should have added this amount to it instead of issuing you a 1099.  If all you got for your sevices was the rebate (you got no money in addition to the rebate), then your 'employer' doesn't consider you as an employee, but instead, as an independent contractor.  That's why they gave you the 1099.  You should have reported this income on Schedule C (subject to self-employment taxes).  If the apartment complex told you what hours to work and what to do, then you are technically an employee and you should have gotten a W-2.  See the second link to see how do decern what you are, and see the third link to see what to do with Schedule C.

Answer 3

From IRS publication 525:

The lodging is:

Furnished on the business premises of your employer,

Furnished for the convenience of your employer, and

A condition of your employment. (You must accept it in order to be able to properly perform your duties.)

But, gee, 1) you weren't an employee, 2) you got it for your "services" so you *did* get a benefit even though it wasn't in cash.  The 1099-Misc is appropriate.