Self-Employment Taxes and Professionals

self employment taxOn January 17th, the Tax Court issued an interesting memorandum decision addressing self-employment tax liability. Hardy v. Comm’r, T.C. Memo 2017-16, 2017 Tax Ct. Memo LEXIS 17 (Jan. 17, 2016). In Hardy, a clever structure limited the self-employment tax exposure of a plastic surgeon.

Dr. Hardy operated his practice through a single-member professional limited liability company managed by his wife. Hardy, 2017 Tax Ct. Memo LEXIS 17 at **3. Some of Dr. Hardy’s surgeries were conducted at a facility known as the Missoula Bone & Joint Surgery Center (“MBJ”). Id. at **1. MBJ was a limited liability company organized by a group of physicians to own and operate a surgery center; it was treated as a partnership for federal income tax purposes.… Read More

Self-Employment Tax Reaches Retirement Income

Mary_Kay_Pink_CadillacThe Internal Revenue Code taxes “self-employment income.” I.R.C. § 1401(a), (b). The tax “is the counterpart of the taxes imposed on wages of employees by the Federal Insurance Contributions Act.” Steffens v. Comm’r, 707 F.2d 478, 481 (11th Cir. 1983) (citations omitted). Recently, the 11th Circuit addressed an unusual issue: whether distributions from retirement plans maintained by Mary Kay, Inc. for its independent contractors are subject to self-employment tax. Peterson v. Comm’r, Nos. 14-15773; 14-15774; 2016 U.S. App. LEXIS 12574 (11th Cir. July 8, 2016).

The Taxpayer, Christine Peterson, was a Mary Kay sales consultant who started to work for the company in the summer of 1982 and earned a pink Cadillac by the following year.… Read More