student loan payments from mother through company
I'm trying to help my wife, Amy, with a letter we just got from the
IRS. Before we were married, her mother paid for Amy's student loans
by adding Amy to the company payroll. Her mother owns a
sole-proprietorship and she is the only person working for that
company; so it's all of her own money. To make payments easier to
schedule, she added Amy to the payroll, and "paid" Amy the money for
her student loan payments every month.
When Amy got "paid", she sent the money off to pay her student loans.
When Amy did her taxes that year, she didn't claim the money she was
paid by her mother since she thought it was just for her student loan
payments, not regular income.
Now, she got a letter in the mail saying she owes the IRS $500 in back
taxes because of $6500 in revenue that she didn't claim on her tax
return.
Should we just pay the $500 and be done with it, or can we appeal
because the $6500 was really a gift from her mother to pay for her
student loans?
- Did the business owner (your Mother In Law) issue your wife a W-2
(showing withholding), 1099-MISC (box 7), or neither? Sounds like a
potential problem with the MIL claiming an invalid business expense
(bogus employee). Was your wife under age