Should someone have received a 1099-Misc for free samples they were sent?

[whathaway]

I've never seen this one before - a client was sent a 1099-Misc with an amount in Box 7 for the value of a variety of free sample products they were sent in exchange for providing reviews for those products on Amazon. They were never paid any actual money for this work and were shocked to find that they're being treated as self-employed and taxed as such for receiving a handful of disposable health care products. It seems to me that the sender should have written off the distribution of the samples as a business expense but should not be sending a 1099-Misc to this person. Am I correct in my logic?

[PhoebeRoberts · Accepted solution]

They bartered goods in exchange for their personal services to the tune of more than $600; sounds like it gets reported on a 1099-MISC to me. When I take a bite of food from the Costco sample-giver, there's no requirement that I provide a review in return, and that's the distinguishing factor.

Whether the activity rises to the level of a trade or business is a matter of professional judgement; the 1099-MISC doesn't control the recipient's tax reporting. That said, value in excess of $600 sounds regular and continuous enough that I'd want a better argument for it not being trade or business income than "it was a handful of disposable health care products."

[whathaway]

So it isn't entirely the fact that it's being reported in general, it's that it's being reported in Box 7 and so it looks to the IRS like it was a cash payment to a nonemployee and they're getting hit with self-employment taxes for it. At most I would think this would be reported in Box 3 and taxed normally, but they aren't out to make money in this effort so it doesn't seem to me that it should be subject to additional self-employment taxes. This is something they've been doing through Amazon Vine for more than 10 years, always for a similar amount of products, and this is the first time they've ever been sent any kind of form at all for it so they're understandably shocked.

[PhoebeRoberts]

Since they've been properly reporting their hobby income on Line 21 for more than 10 years, and the 1099 presentation reflects the payor's treatment and isn't binding on the recipient, I see no reason at all that they'd be shocked. Worst case scenario, they get a mismatch notice and explain that it's not a trade or business.

[itonewbie]

Agree with Phoebe and Jeff.  First, having an income reported in Box 7 of 1099-MISC does not dictate that the recipient is subject to SE tax.  Question remains as to whether the income is derived from a §162 ToB pursuant to §1402(c).  That is a determination you and your client will need to make based on his/her set of facts and circumstances.

Your client should not be shocked to receive a 1099-MISC.  It was reported that the products sent for review are technically on loan but reviewers are not obliged to return them, hence the money's worth is considered income and 1099-MISC is issued as required when the value exceeds the threshold.  It was also reported that the T&C for Vine participation were updated back in 2015/16 to reflect these changes.

https://en.wikipedia.org/wiki/Amazon_Vine

https://thewirecutter.com/blog/amazon-vine-reviews/

[IRonMaN]

"This is something they've been doing through Amazon Vine for more than 10 years"

Sounds like a business to me.  Getting paid to perform a service doesn't have to come in the form of cash to be taxable.

[qbteachmt]

For the value up to the $600 reportable threshold and above, you can read here that they still might be using Line 21:

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/1099-misc-independent-contractors-...