Lazy direct seller: Other Income or Schedule C?

Discussion in 'Tax' started by Lee Choquette, Jan 1, 2015.

  1. Taxpayer attended a meeting of a multi-level marketing association (MLM)
    and was persuaded to sign up. She only bought some of the MLM materials
    for her own use, and never at any time tried to recruit other members
    into the MLM. She was eventually paid a total of less than $100, a
    portion of the purchases made by people who joined the MLM after she
    did, but were recruited by the same person who recruited her rather than
    by herself.

    On the one hand, the taxpayer's behavior seems to perfectly fit the
    definition of a hobby. She did not sign up with the MLM for income or
    profit and was not involved with "continuity and regularity". The
    taxpayer has not even kept the receipts for materials purchased from the
    MLM. Therefore it makes sense to me to report the <$100 on 1040 line 21,
    "Other Income", and not report the purchases anywhere.

    On the other hand, a direct seller is supposed to be treated as
    self-employed (statutory nonemployee) according to Publication 15A and
    presumably a provision in the IRC. Yet since the taxpayer never tried to
    sell the MLM materials, it would seem that she is a direct seller in
    name only, and therefore doesn't actually fall under this requirement.

    What do you think: Other Income or Schedule C?

    Lee Choquette, Jan 1, 2015
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  2. Lee Choquette

    Bob Sandler Guest

    Taxpayer attended a meeting of a multi-level marketing association (MLM)
    I agree that the income should go on line 21. She does not
    meet the definition of "direct seller" in Pub. 15-A because
    she is not "engaged in selling." Purchases for her own use
    are not business expenses.

    Bob Sandler
    Bob Sandler, Jan 1, 2015
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  3. I must lead a very unadventurous life, because I occassionally see
    a pink SUV with Mary Kay written on it, but I've never had a MLM client
    with a schedule C profit.

    Given your fact pattern I would vote hobby business, but would not
    be surprised if the client walks away.
    Arthur Kamlet, Jan 1, 2015
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