I used to work in radio. I was the news director at KNOD radio station in Harlan, over in the western part of Iowa.
I plan to start writing more about my past and my experiences and how it ties into my professional life. But those are different blog posts for different days.
Today I want to write about a U.S. Tax Court case that caught my eye last summer. I’ve had it on my “to-blog-about” list for a long time.
The case intrigued me because it involved a radio station employee who got paid by his employers as both an employee and an independent contractor. The result of the case surprised me.
A man by the name of Mr. Ramirez was an employee of Univision and worked for radio station KXTN in San Antonio. He was the station’s program director and was an on-air personality.
In 2005, the station was struggling financially so Mr. Ramirez took it upon himself to find sponsors. From the U.S. Tax Court ruling:
Mr. Ramirez established a direct, personal relationship with his sponsors, working hand-in-hand with them from the start of the advertising campaign to its end. They had no written contracts, just handshake agreements. Mr. Ramirez set the amount to be paid to him for his promotional services without input from Univision or KXTN….
Mr. Ramirez assisted the sponsors in developing their respective advertising campaigns, including the drafting of their “copy points” which outlined those elements of the advertising campaign that the sponsors desired to highlight. He promoted their products and/or services, both during on-air broadcasts and on “off-air” appearances at sites designated by the sponsors.
Even though Ramirez set the amounts the sponsors would pay, the sponsors were billed by Univision. Univision added these amounts to Ramirez’s wages. Withholdings for income taxes and FICA were taken out of his pay, and these amounts were included as wages on Ramirez’s W-2.
In 2007 (the year in question before the Tax Court), Ramirez was paid an additional $82,000 of wages from his sales.
When he filed his 2007 tax return, he included a Schedule C showing $0 of income and $26,303 of expenses. The Schedule C related to his sales work. According to Ramirez’s CPA, the Schedule C showed $0 of income because the $82,000 of sales income was already included on his W-2.
Naturally, the IRS audited Ramirez. The IRS believed the $26,000 of expenses were employee expenses that should have been shown as itemized deductions subject to the 2% of AGI limitation, rather than as Schedule C deductions.
Mr. Ramirez argued that his sales work was outside the scope of his regular work at the radio station and so the sales work should be treated as independent contractor wages.
To my surprise, the Tax Court agreed. They reclassified the $82,000 of sales income as Schedule C gross receipts and allowed the $26,000 of deductions against that income.
In Part 2, I’ll explain why I’m surprised at this entire arrangement based on my own experiences in my “prior life” in radio.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”