Royalties

[cclark]

I have a client who receives royalties from her ex-husband as part of a divorce. The amount is over $10K and her last preparer used Schedule E. The royalties are from books, manuals and tests. To me this is not a business or has to do with a rental. How should I report this income?? In other income?

Thanks!

[Just-Lisa-Now-]

Sch E is correct, its not a rental, but royalties go on Sch E too (they have the own line)

[Dusty2]

@Just-Lisa-Now-  I thought that Royalties from books, etc are a Schedule C item?

Dusty

[rbynaker]

I would need a whole lot more information.  Was this community property?  Did she have anything to do with the activity generating the royalties?  Smells to me like somebody is trying to get around the new alimony rules.

[cclark]

Yes it is a community property state and she has nothing to do with his book publishing so I would not do a schedule C as it's not a business for her.

[BobKamman]

Is it reported on a 1099?  Issued by the publisher?  So she is not receiving them from her ex, she is receiving them from a third party because he has assigned them to her?  Many years ago I worked on a case involving royalties from one of the members of the Eagles ("Hotel California") that were assigned to his ex-wife.  The court said he could do that.  Normally, "assignment of income" is not recognized, but patents and copyrights are different.  It doesn't make much sense to put them on Schedule E, along with minerals and fossil fuels, but that's what IRS says to do.  Use your own judgment on how much depletion she should claim.  

[sjrcpa]

@Dusty2 Book Royalties would be Schedule C income to the person who wrote the books.

How it translates in a community property state after divorce, I don't know.

@rbynaker They may be trying to get around the new alimony rules, or not.

I've seen a number of property settlements where people get X% of Y type of income for Z years

[cclark]

 The 1099 is issued by the publisher. She has no expenses for this as it was through a divorce she received the to royalties. This will be income to her every year.

[rbynaker]

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@sjrcpa wrote:

@rbynaker They may be trying to get around the new alimony rules, or not.

I've seen a number of property settlements where people get X% of Y type of income for Z years

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Makes much more sense to me if it's CP.  Then it's a division of marital assets (future revenue stream).

[Just-Lisa-Now-]

she not an author, its not her business that created the royalties