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TaxLawyer1978

Trustee earns commission, assigns to company. Who pays tax?

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Not sure if anyone has come across this issue, but I have a client who is a professional at a professional service firm.  He serves as trustee to a trust and earns commission for his services as trustee.  By contract, he is required to turn over any commission earned to the professional service firm for which he works.  The trust will issue him a 1099-MISC and the commission is earned by him; however, due to being required to turn over the money, he doesn't get any benefit of the commission.  Does he have to pay taxes on the commissions and report it on his tax return, or can the tax somehow be picked up by his employer?  Does the assignment of income doctrine require that he report the income and pay the tax because he is the one that earned it?  

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Unless he can get it paid directly to the company, he will be taxed on it due to receiving the 1099-MISC.  But he can/should in turn issue a 1099-MISC to the company so it just washes through his own return (he should also file a Schedule C showing "X" income and "X" expenses for a net of $0.

But the best answer is to get it truly assigned and paid to the company, if possible.  Depends on the nature of the commissions and also interpretations by the payee...I have a corp for admin work but I'm also a broker.  My old broker-dealer used to let me assign commissions to the corp., then they changed their mind and said they had to pay directly to me, period.  Also my new B-D.  So I pay everything to the corp. and file a Schedule C with $0 net. 

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Thanks.  Would your answer change if this guy is a partner in a partnership (lawfirm) and the partnership agreement requires him to turn over any money earned outside the lawfirm?  He pays the commissions over to the firm and gets a subsequent distribution out of the partnership.  What if the trust doesn't issue him a 1099? I believe they're not required to do that (although they may want to to take a deduction).

Thanks

 

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2 hours ago, BG5150 said:

I would think his accountant should be providing these answers.

Agreed

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