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IRS audited my 2018 Taxes and claim that I must pay Self Employment Tax for SPIFF.

I am an appliance sales person and was employed by a company that allowed us to file SPIFF from the manufacturer. In 2018 I filed approx $75,000 in SPIFF. Because it was such a large amount, the IRS is saying that I was self employed, and am subject to pay Self Employment Tax. I have been fighting this for 5 years now. They told me to explain why I felt I am not subject to SET. I sent them all my 1099 MISC with all the amounts in Box 3 (not Box 7) and they basically said that was not a good enough reason. Because this has gone on so long it's ballooned into a $17000 payment that I am not convinced I need to make. They are allowing me one more opportunity to plead my case. They want me to send information on how I get paid and what SPIFF's are. Is there any documentation I can include by the IRS that says SPIFF are not subject to self employment tax.


When I discussed it with someone from the IRS over the phone I was told that the amount raised a red flag, basically saying because I made so much in SPIFF, I must be self employed. My employment has never changed in 10 years. I have been paid the same way.


Note: I understand that SPIFF are taxable, I paid State and Federal Taxes. I am not debating whether they are taxable or not, I need proof to show the IRS that this income is not subject to Self Employment Tax.


Thank You

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3 Replies

IRS audited my 2018 Taxes and claim that I must pay Self Employment Tax for SPIFF.

You need to get local professional guidance to fight this if you are not winning the battle ... look for a tax attorney if they have sent you a notice about your right to go to tax court for this issue.  

IRS audited my 2018 Taxes and claim that I must pay Self Employment Tax for SPIFF.

While not mentioned in the analysis, these Chief Counsel Advices are arguably consistent with prior IRS guidance. For example, the IRS previously had opined that, when a manufacturer pays a bonus to salespeople working for a retailer to get them to "push" its products, the bonus is not wages because it is being paid by a third party that is not the salesperson's employer. As such, the payments are income to the salespersons, but not subject to income tax withholdings or employment taxes.12


12 This is commonly called "push money." See, e.g., Rev. Rul. 70-337,1970-1 CB 191; Rev. Rul. 70-331,1970-1 CB 14.


my reference material indicates that rev rul 70-337 is still in effect.  however, I was unsuccessful in finding it on the internet.  the rev rul dealt with Spiffs received by an auto salesman from the manufacturer regardless of whether received directly or through the dealership.

the reasoning is that the salesman was not an employee of the manufacturer,  

i agree a pro might be best but it you want to go-it-alone get a letter from the manufacturer spelling out you are not their employee and were merely renumerated for pushing their product.

then cite the above references. 


also note there are other threads from earlier years on this forum that come to the same conclusion that Spiffs from third parties are not SE income. 




if you-go-it-alone you might want to print this out and highlight the part about the income not being subject to SE-tax. though it's for auto salesmen, the same logic should apply to your situation. 

IRS audited my 2018 Taxes and claim that I must pay Self Employment Tax for SPIFF.

I think the problem is that the 1099-MISC is not proof of what you actually did, it's only proof of the amount you were paid.  You may need to document how and why you were paid that money--for example, that you were an appliance sales person on regular salary from the appliance store.  That you sold an unusual number of appliances or you sold some unusually expensive appliances.  Do you have other business records from the appliance store?  Do you have copies of paperwork that was submitted to the manufacturer, or statements from the manufacturer, showing the appliances sold, the date, and the amount of incentive?  Can you tie those statements to other business records from the store?  Did you keep a separate diary showing what appliances you sold, on which dates, and when  the incentives were paid and the amounts?


You don't just need the 1099, you need to build a picture for the investigators of what you sold, when you sold it, and how you qualified for the incentives. 


And you need professional representation.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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