HOSTING A FOREIGN EXCHANGE STUDENT

[OzNY]

My client received a 1099-NEC for hosting a foreign exchange student.  She has been doing this for several years and always received a 1099-MISC.  I told her to call the company that issued the form because it is incorrect and issue a 1099-MISC.  I have been trying to locate the IRS Publication that states that the form should be a 1099-MISC not NEC.  I can only find what can be claimed.  The stipend that the taxpayer receives is solo to cover the student's food, transportation and additional utilities in the home.  The company that issued the 1099-NEC had already overstated the income on the form.

Any guidance would be appreciated.

Hope everyone is enjoying the summer!!!

Tina

[BobKamman]

What have you been doing with the 1099-MISC?  Paying tax on all of it?  Because the expenses would not be deductible on Schedule A.  At least with a 1099-NEC, you can use Schedule C, although it's not really a trade or business.

Or is it? One online source says the "stipend" can be $1,000 a month.  Hungry teens can eat you out of house and home, at least from some northern European countries, but what if you host an Asian vegetarian?

[OzNY]

In the past few years, a 1099-MISC has been issued and taxes are paid on that amount. The only deduction that can be taken is donations on Schedule A for this 1099.  As far as I'm concerned, the 1099-NEC is incorrect.  The taxpayer should not be responsible to SE Tax.

[qbteachmt]

"a 1099-MISC has been issued and taxes are paid on that amount."

Has it always been reported in Box 7? If so, that no longer exists; the transition is to 1099-NEC, an old form that is reactivated to replace Box 7.

"The company that issued the 1099-NEC had already overstated the income on the form."

Is your taxpayer the name on the 1099-NEC or the student? It's not overstated Income if it matches Gross. Or, other components of value were included, and that is part of Gross. For instance, referral fees.

"The stipend that the taxpayer receives"

If it used to be 1099-Misc Box 1, it should still be there, because that is Rent. Not Stipend.

[BobKamman]

But the deduction on Schedule A is limited to $50 a month, right?  And it's really not rent if it covers food, transportation and other expenses.  Not everything on a 1099-NEC is subject to SE tax, but I agree that the knee-jerk IRS computers might see it that way if there is enough money involved.  Like, more than $3,500 or so to generate at least $500 assessment.  

Where does the paying organization get its funds?  Do the students pay to be in the program?  Beginning to sound more like a business.  I wouldn't rule out Schedule C, but we really don't have enough facts and circumstances.  

[OzNY]

In the past, the amount was always reported as "other income". never non-employee compensation.  I am aware of the change of the 1099's.  When I said that they already overstate the amount that they claim the taxpayer received; I only said that because this company seems to be unorganized.  The amounts were corrected previously.  My issue is whether or not this should be reported on a 1099-NEC or not.  I don't believe it should be.  I was hoping that someone knew where to find this in a publication.  Any publication or literature I have found, never mentions which form the taxpayer will receive.

[BobKamman]

An interesting memo on this issue from a CPA in 2014.  It recommends Box 3 of Form 1099-MISC.  It also says that the charitable deduction would not be allowed if any expenses are reimbursed, even if only partially.  Six months after the 1099's have been filed, I think you're going against the wind by arguing "wrong form."  Report it as other income and deal with IRS if you must, if a CP-2000 follows.  And try to resolve the issue with the payer organization before 2023 ends.

file:///C:/Users/Bob/Downloads/Memo-TaxabilityofHostFamilyPayments.pdf 

[TaxGuyBill]

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@OzNY wrote:

 My issue is whether or not this should be reported on a 1099-NEC or not. 

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Unless you are issuing the 1099, you really don't need to be overly concerned if it was reported on the proper form or not. 

Report the income on the appropriate place on the tax return, based on the facts.  If you believe it should be "other income", then report it that way.

If you believe it is "other income" and not a business, then you will need to decide if (a) you want to report it on Schedule C than 'back it out' for a net result of $0 profit, or (b) tell the client to expect an IRS notice and help them respond to it.

I do think that there are some situations that hosting an Exchange Student could be a business on Schedule C, but other situations where "other income" is correct.  But I don't know anything about your client's situation, so I can't give any input on that matter (you'll need to decide that based on the facts-and-circumstances).