Expert Witness income

[Catherine]

Client was asked to serve as an expert witness.  Not something he does for profit; someone who *does* do this for profit spent some time looking for someone with skills to do some testing, and found the client.  Turned out to be a lot more work than expected, so he has about $9K of expert witness income.  But he is NOT in the business of providing same, and after this bout says he'll turn down any future work.

I'm thinking this is NOT self-employment, as there was and is no profit motive.  But all the guidance I can find is about this work FOR profit; people whose livelihood is this work.

Opinions and references, anyone?  Thanks!

[Gail in Virginia]

I can't help, Catherine.  I have one client, an NP Anesthetist, who does some of that but does it on a regular enough basis that we have always treated it as SE income.  I would tend to agree with your thinking from a logical standpoint, but logic does not always have much to do with taxes.  On the other hand, if he is an expert in this field I would suspect that it at least relates to the way he makes his living and could therefore be considered an extension of that and be the reason that IRS considers it subject to SE. 

[BulldogTom]

Wow, this brings up a million questions.   Is he self-employed and is the testimony related to that work?   Is he employed in the same field his testimony related to?   

I think I have a problem with you saying there was not a profit motive.   Someone called him up and said "you wanna make a few bucks testifying?" and he said "Yes".   That is a prima facia profit motive right there. 

Would he have done this work out of the goodness of his heart because it was a cause he believed in?

A factor in your favor is he has never done it before.   But will he do it again?  That would change the analysis.

He is obviously an expert in his field - so that is a factor against you.

He probably did not run it like a business - so that is in your favor.

Does he have significant other income so that this can be shown to be casual and not something that improved his economic condition?

This is a tough one.   Lots of questions, no answers.   Good luck.   

I will be one of your sounding boards if you want to continue thinking this through.

Tom
Modesto, CA

 

 

[Max W]

If one sees what it takes to qualify as an expert witness, I think there is only one conclusion - SE income, even if it is only one time.  

It is much the same as authoring a book.  If it is a carpenter writing one time about bee keeping, it is ordinary income.  But, if the one time  book is about building a house, it is SE income.

https://www.journalofaccountancy.com/issues/2004/oct/soyouwanttobeanexpertwitness.html

[Catherine]

2 hours ago, BulldogTom said:

Wow, this brings up a million questions.   Is he self-employed and is the testimony related to that work?   Is he employed in the same field his testimony related to?   

I think I have a problem with you saying there was not a profit motive.   Someone called him up and said "you wanna make a few bucks testifying?" and he said "Yes".   That is a prima facia profit motive right there. 

Would he have done this work out of the goodness of his heart because it was a cause he believed in?

A factor in your favor is he has never done it before.   But will he do it again?  That would change the analysis.

He is obviously an expert in his field - so that is a factor against you.

He probably did not run it like a business - so that is in your favor.

Does he have significant other income so that this can be shown to be casual and not something that improved his economic condition?

This is a tough one.   Lots of questions, no answers.   Good luck.   

I will be one of your sounding boards if you want to continue thinking this through.

Tom
Modesto, CA

 

 

Not self-employed.  Not employed in the same field.

Someone called him and said, "We've heard you are an expert on X; can you help us?" and it was an interesting problem.

Yes he didn't even realize he was going to be paid until the project was well underway.

He won't do it again; it has taken way more time than expected (even after doubling what they told him they'd need).

He's an expert in the field - but it's a hobby he's been involved in for 50 years.  Never a job, never self-employment, always for the love of the activity.

Not run like a business.

Plenty of other income.

 

How does that factor in?
 

[Lion EA]

Hobby income.

[Roberts]

100% other income.

 

Being an expert witness is not something I've enjoyed doing. Attorney's earn their reputation for being jerks.

[BulldogTom]

43 minutes ago, Catherine said:

Not self-employed.  Not employed in the same field.

Someone called him and said, "We've heard you are an expert on X; can you help us?" and it was an interesting problem.

Yes he didn't even realize he was going to be paid until the project was well underway.

He won't do it again; it has taken way more time than expected (even after doubling what they told him they'd need).

He's an expert in the field - but it's a hobby he's been involved in for 50 years.  Never a job, never self-employment, always for the love of the activity.

Not run like a business.

Plenty of other income.

 

How does that factor in?
 

 

41 minutes ago, Lion EA said:

Hobby income.

I think Lion hit it on the head.   

I believe that the requirement to pay self employment tax is contingent on the attempt to earn a profit from an activity.   And the IRS rules for what is a hobby, generally used to reclassify losses in what is represented as a business, cut both ways.   Go through the factors that the IRS uses against a taxpayer to determine if the activity is a business or a hobby.   Based on your answers above to my questions, the analysis will most likely come out that this is a hobby and not subject to SE tax, but included as other income.  The biggest factor, even though the IRS says none are controlling, is the profit motive.   I think you need to document the initial contact from the company and your client.   You will need that, because this is probably going to generate a letter.   But if you can reply with all the facts and your analysis of the law, it should go away.   Prep the client for the probability that a letter will come and be ready to reply when it does.   You should be fine.  The position you are taking is supported by the law, and the tax courts.

Tom
Modesto, CA