Confession time.

I have a low threshold for boredom.

So, besides helping create medical, pharmaceutical, water treatment, among other products; serving as CFO or Managing Partner to a few law firms; financial advisor to small and medium businesses; non-profits, and unincorporated entities; I also am a consultant to two national tax providers.

This case came up while working with one of them.’

A taxpayer was complaining that they received a CP2000 (that’s the mail version of the IRS agent’s knocking on your door to audit you).

Why?

She had received a 1099-MISC, indicating they received $ 2000 for donating eggs (only one such session).  The taxpayer had included the income as “other income” and paid her taxes.  Thinking she was done.

Except, she didn’t consider how aggressive the IRS might be.

This CP2000 indicated that the IRS was charging her with running a business and not filing properly; she had failed  to pay Self-Employment taxes on the $ 2000 for her one session of egg donation.  And, now the IRS wanted some $ 325, including penalties and interest.

The tax professional requested my assistance;  while she was the professional “facing” the client, I was her “lifeline”.   (My inclination was to tell the customer to fight the IRS; however, that is not the “proper” procedural rules by which the tax company abided.)  And, that was confounded because there was an obscure tax case back in 2012, which the IRS had won what she considered to be a similar case-  Nicolle Perez had petitioned that her collecting $ 20,000 for multiple sessions of donating eggs was not a business.  And, lost in Tax Court.  That single case seemed to be the basis for the IRS muscling in on this young woman.

This taxpayer (the ultimate customer) had not paid for audit defense with the tax provider.   (I should note that most of our clients don’t do so either.)  So, given the guidelines by which I was to provide assistance, it was hard to tell the taxpayer to do anything but pay the self-employment taxes and request penalties and interest be abated.

But, the case bothered me a lot.  Because if she were MY client, my response would have been “HELL, NO!”  Her egg donation was a one-time gig; not an idea from which she planned to make money from long term.  This IRS position would be like requiring a soul who was paid for a clinical trial to consider that a business, too.  (It’s not.)

All I could initially recommend was that the representative inform the client to request the abatement of penalties and interest.

But, if she were my client, I’d have written the IRS that this was NOT a business. It was a one time effort and was taxable income, but not subject to self-employment taxes.  She was not like Nicolle Perez that routinely donated her eggs and generated income from said activity.

If the IRS didn’t capitulate, I would escalate the case.  Because the taxpayer was right.  This was not a business.  It was just income.

Thankfully, I convinced my client that they needed to change their rules of engagement.  Which allowed me to contact the tax expert, telling the expert to contact the customer immediately.  To seek our local counsel (hopefully, wherever she lives there’s a talented tax professional [almost as good as I]) to take up the case and fight the IRS.

She’d still be at least $ 200 ahead of what the IRS wanted to steal from her.