How to tax an honorarium received for a graduate student attending a Summer Institute

[Dodgerfan]

My graduate student client was invited to attend a 10 day Summer institute in June of 2022 by the Jack Miller Center in Denver CO. She had to commit to all 10 days which she did and attended all 10 days. During that period she attended daily morning seminars, breakout sessions, and afternoon workshops.  The Jack Miller Center provided air travel, lodging and all meals at no cost. She did not lead any of the seminars, breakout sessions or workshops. She was only a participant in the program.

In addition she received what they previously described as an Honorarium of $1,500 upon completion of the program. She later received Form 1099-NEC for $1,500.

How should I report the $1,500 of income she received for her attendance? Other income or Self-Employment income subject to Self-Employment tax?

[Skylane]

Other income not subject to SE.

[Dodgerfan]

Thank you for your response. Is there any authoritative support for your answer? The IRS thinks that if you receive a 1099-NEC with an amount in box 1 it is self-employment income subject to self-employment tax. The instructions for form 1099-NEC indicate that other income not subject to self-employment tax should be reported in box 3 of Form 1099-MISC. 

Everything I have read seems to state that an honorarium requires reporting on Form 1099-NEC. 

[BobKamman]

What the IRS thinks is interesting, but what goes on a tax return is based on law and not opinion of which form should have been used in 2022.  Are you just getting around to filing this return?  Or is it not even necessary unless you're worried about SE tax?  In any case, IRS has finished all the CP-2000 document matching for 2022, and it is highly unlikely that they would issue a notice based on about $200 tax difference.  De minimis non curat lex.

Actually, this is what IRS thinks:  Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be
reported on Form W-2. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported to the IRS on any form, unless section 6050S requires reporting of such amounts by an educational institution on Form 1098-T.

[Dodgerfan]

Thank you for your response.  

The 2022 returns were filed on time in April 2023.
Actually, the client just sent me the CP2000 for her 2022 return. The IRS assumed that the income had not been reported at all. I had originally reported the 1099-NEC income as part of her taxable scholarship & fellowship income which was reported as other income not subject to SE tax on the tax return. I thought that was the proper treatment. 

This amount was not part of a fellowship and was categorized by the Institute as an honorarium.

The IRS shows the 1099-NEC amount as SE income.  She also had excess advanced premium tax credit which would have been increased if the income had not been reported at all. The amount including interest would have been over $1,000.

So the question comes down to whether or not the 1099-NEC income is subject to SE tax. If not , how do I support my position that it is not?

[George4Tacks]

When all else fails - Read the instructions! In this case look at the 1099-NEC form.

Instructions for Recipient
You received this form instead of Form W-2 because the payer did not
consider you an employee and did not withhold income tax or social
security and Medicare tax.
If you believe you are an employee and cannot get the payer to correct
this form, report the amount shown in box 1 on the line for “Wages,
salaries, tips, etc.” of Form 1040, 1040-SR, or 1040-NR. You must also
complete Form 8919 and attach it to your return. For more information, see
Pub. 1779, Independent Contractor or Employee.
If you are not an employee but the amount in box 1 is not self employment (SE) income (for example, it is income from a sporadic activity or a hobby), report the amount shown in box 1 on the “Other income” line (on Schedule 1 (Form 1040)).
Recipient’s taxpayer identification number (TIN). For your protection, this
form may show only the last four digits of your TIN (social security number
(SSN), individual taxpayer identification number (ITIN), adoption taxpayer
identification number (ATIN), or employer identification number (EIN)).
However, the issuer has reported your complete TIN to the IRS.
Account number. May show an account or other unique number the payer
assigned to distinguish your account.
Box 1. Shows nonemployee compensation. If the amount in this box is SE
income, report it on Schedule C or F (Form 1040) if a sole proprietor, or on
Form 1065 and Schedule K-1 (Form 1065) if a partnership, and the
recipient/partner completes Schedule SE (Form 1040).
Note: If you are receiving payments on which no income, social security,
and Medicare taxes are withheld, you should make estimated tax
payments. See Form 1040-ES (or Form 1040-ES (NR)). Individuals must
report these amounts as explained in these box 1 instructions.
Corporations, fiduciaries, and partnerships must report these amounts on
the appropriate line of their tax returns.
Box 2. If checked, consumer products totaling $5,000 or more were sold
to you for resale, on a buy-sell, a deposit-commission, or other basis.
Generally, report any income from your sale of these products on
Schedule C (Form 1040).
Box 3. Reserved for future use.
Box 4. Shows backup withholding. A payer must backup withhold on
certain payments if you did not give your TIN to the payer. See Form W-9,
Request for Taxpayer Identification Number and Certification, for
information on backup withholding. Include this amount on your income
tax return as tax withheld.
Boxes 5–7. State income tax withheld reporting boxes.
Future developments. For the latest information about developments
related to Form 1099-NEC and its instructions, such as legislation enacted
after they were published, go to www.irs.gov/Form1099NEC.
Free File Program. Go to www.irs.gov/FreeFile to see if you qualify for
no-cost online federal tax preparation, e-filing, and direct deposit or
payment options.

[BobKamman]

I'm not sure this meets the definition of scholarship/fellowship from Section 117, but the idea is the same.  She is not a self-employed honorarium collector.  I'll give you a 50% chance of convincing some clerk at the Service Center that this income was already reported, and it's not SE income.  Make sure when you reply to the CP-2000 that you ask for the case to be sent to Appeals if your explanation is not accepted.  Not that correspondence exam will pay any attention to the request, but it helps if you want legal help with a Tax Court petition later.  

As far as I have been able to figure out, the minimum for a CP-2000 to be issued is $500 difference in tax.  How much do they hope to get from this?  No other issues on the return?  Maybe $300 for income tax, $200 for SE tax and $250 for reduced premium tax credit?  Was this a joint return?