Hello, I’m trying to help my mom get some advice on what to do in a complicated question for helping my grandmother. Any advice is greatly appreciated.
No good deed ever goes unpunished. I recently received a letter from the IRS on behalf of my mother to whom I will refer to as S. I have power of attorney both financially and medically for her. The letter claims that she owes $5000 in back taxes for 2019. The claim is that the 1099 NEC that was filed with her taxes was subject to self-employment taxes. S has been in a nursing home since late 2016. She is 100% bedbound, requires a Hoyer lift, and can not safely sit in a regular wheelchair. So, obviously, she was not engaged in any type of self-employment activities for the year of 2019. So, here is where it potentially gets complicated. My father created a company in 1980ish that is still in business today. This company has been incorporated and has a full time staff of about 10 employees. S has worked in the private sector for industry as well as health care at one point. She retired as a Texas teacher mid-year in 2005. In Texas, teachers do not pay into Social Security. My father had a traumatic brain injury in the fall of 1986 and effectively retired from all active participation in the company’s day-to-day activities. At that time, my second oldest brother G took the helm as CEO. In 2005, my brother lost his life. It was then that my oldest brother M took over as CEO. In 2014, my father passed away.
My father paid my mother a check where payroll and social security taxes were paid even though she never worked for the company. As a result, even though my mother retired as a Texas teacher, she had enough quarters to draw both Texas Teacher Retirement and Social Security. These payments continued until sometime in 2018 when my brother informed me that he would need to change the status of the payments to our mother. At the time he said he was putting it on the books as a loan. At no time was my mother ever an employee of the company.
Is the IRS correct in saying that the 1099NEC was for self-employment (I did read that if the money was part of a retirement from self-employment that it was still subject to the same tax as if it was active employment)?
If not, what documentation do I need to submit to show this?
If I send in that she was never an employee of the company, will that put into jeopardy her social security payments?
She is private pay at the nursing home and requires 24/7 care. This and the medication she takes requires all monies she brings in. The money from the company (which the company said at one time was being converted from a paycheck of sorts to a “loan”), her teacher retirement, and social security payment. If we could claim 100% of her medical expenses this would not be an issue. She does not have the $5000 – which, if actually due, will be $15000 by the time the IRS catches up with tax years 2020 and 2021. We do not have the money either. We are already paying back a large tax settlement for several years in which my father didn’t file taxes. We refinanced her home and because she could not show the income required for the loan, my husband and I are now also on the loan. My mother no longer pays on the home – we do. We would not be able to refinance again because in Texas, my mother who now has greatly reduced mental faculties, would have to be transported via an ambulance to a title company and would have to sign all the paperwork. She would not understand what she was signing so this is a non-option.
Any help is greatly appreciated.