Compensation... can we use

[K-t-F]

Potential new DB plan. Client is a coach for a college team and earns $250K W-2 from the university. He also earns 3x that from an alumni foundation to make up his 1M annual salary. The $750K is paid to him on a 1099 and he files a Schedule C.

Can a DB plan be setup under his Schedule C using that compensation?

Thanks

[mbozek]

Potential new DB plan. Client is a coach for a college team and earns $250K W-2 from the university. He also earns 3x that from an alumni foundation to make up his 1M annual salary. The $750K is paid to him on a 1099 and he files a Schedule C.

Can a DB plan be setup under his Schedule C using that compensation?

Thanks

If it is Sked C income he is self employed which makes him eligible for a self employed pension plan. See IRS pub 560 P 12. A self employed person can maintian a separate pension plan from the plan he is covered under as a W-2 employee.

[K-t-F]

That is great... but do you see any issue with him doing the same job and earning income from 2 separate sources for that same job?

I want to make sure I am perfectly clear...

- He is a coach for a university

- The university pays him to be a coach ... $250K.. and issues him a W-2

- He is also paid $750K over and above the university's paycheck for the exact same position by an outside source... and the outside source issues him a 1099 which he declares on a Schedule C.

Does that send up any flags?

Im going to look at Pub 560

Thanks

[PensionPro]

An alumni association generally is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university.

I don't have enough information to answer your question but I would recommend digging a little deeper to verify whether in this instance you have 2 sources of income or just one for plan purposes.

[K-t-F]

Interesting....I admit that I am not knowledgeable with regards to what you are saying. Do I have it right....

The coach is paid by the university... $250K W-2

The coach is paid by the alumni association $750K 1099

And if the University has control of the alumni association then in essence he is considered to being paid by one entity?

This all hinges on who controls the alumni association If they work independent from the university then looks good... if not.. then there is a problem.

[jpod]

If I were the coach's tax lawyer/advisor I would review his contract with the college and sort through this. My gut tells me the $750K is really (under IRC principles) a payment wages for his employment by the college; the fact that it is paid by the foundation is not determinative.

[frizzyguy]

Is he deemed a statutory employee? Sounds like it.

[K-t-F]

ahhh.. he does sound like a statutory employee. BUT.. can I still hang in there with a slim hope if it is determined that the compensation paid by the outside source is not under the control of the university?

[mbozek]

That is great... but do you see any issue with him doing the same job and earning income from 2 separate sources for that same job?

I want to make sure I am perfectly clear...

- He is a coach for a university

- The university pays him to be a coach ... $250K.. and issues him a W-2

- He is also paid $750K over and above the university's paycheck for the exact same position by an outside source... and the outside source issues him a 1099 which he declares on a Schedule C.

Does that send up any flags?

Im going to look at Pub 560

Thanks

Who is really the employer who controls his employment as coach, e.g., can fire him? I dont think its the AAssoc. Joe Paterno was an employee of Penn state U, which fired him. Paterno reported to the Athletic director of PSU, not the Alum assoc. I dont think the AA is his employer for the purpose of employment as coach b/c coaches are not hired as independent contractors. This kind of arrangement usually has the coach performing other duties for the AA such as meeting with the almni, attending dinners, going out to various alumni chapters to solicit donations to the U, that have nothing to do with his responsibilities of coaching the football program. AA may operate under diffierenct section of IRC than college.

[K-t-F]

so... are you saying that he can use his AA money to establish a plan? because he is paid for "appearances" and "promotions" rather than coaching?

What if this was true... what if he established a Sub S corp and the AA money was paid to the S corp? Is that a layer that might work? or is that just a layer.

I learned that the U pays all his benefits... Insurance, workmans comp... everything. The AA doesnt pay anything. Straight 1099.

I dont know what would happen to the income stream from the AA if he was fired. Ill find out.

Thanks for ell the help

[frizzyguy]

If he's a statutory employee, he can use all of his income for a DB plan as long as he's not a full time insurance saleman. Statutory employees can't recieve benefits from the employer, therefore they are allowed to open their own plan. Check out the EOB, there is some really great stuff in there about it. Sal cites everything wonderfully, as always. Let me know if you can't find it.

Because he gets benefits from the U, he is not a statutory employee.

That being said, Dave Rigby is running towards this post screaming something...what's that Dave?

"Consult an ERISA Attorney."

Louder Dave, Louder!

"CONSULT AN ATTORNEY."

What's that? Still can't hear you...

"CONSULT AN ERISA ATTORNEY."

That's a really good point. This is a unique enough situation where I think you'll want to consult an attorney. I could see this, especially because of the break point on comp, as a clever way to circumvent 401(a)(17) limits. Is that what's happening? Probably not. I'd still like to know that if the IRS throws a tissy and it has a chance of falling through there is an attorney there to a) cover my @#& and b) represent my client.

I think the client would probably understand the additional fee if you explained the situation.

[K-t-F]

Ok.. so .. Im guessing an ERISA attorney should be asked if the income can be used. No one would move forward on this plan without the blessing of an attorney for fear that a few years down the line Uncle Sam came in and disallowed the income and the plan. So.. that is the next step.

I appreciate everyone chiming in.

Last question... anyone know an attorney who may be good for this situation?

[BG5150]

Last question... anyone know an attorney who may be good for this situation?

I'm not an attorney, but I played one at Mock Trial in 11th grade...

[david rigby]

That being said, Dave Rigby is running towards this post screaming something...what's that Dave?

Only my mother is permitted to call me Dave.

[frizzyguy]

I apologize, it will never happen again.