Attorney-at-Law

OH KAY

In Uncategorized on 02/18/2020 at 15:41

James H. Dunlap and Eileen M. Dunlap, 2020 T. C. Sum. Op. 10, filed 2/18/20 have a problem with self-employment tax from Eileen’s deferred compensation.

Eileen was well up the pyramid at Mary Kay, a multi-level cosmetics distributorship. She retired from independent contractorship into the Family Security Program, a non-qualified Section 409A non-account balance deferred compensation plan.

Eileen wants to claim she sold her goodwill to Mary Kay.

Judge Gerber: “There was no agreement between Mary Kay and Ms. Dunlap with respect to any sale of a business or goodwill.  Other than the reference to goodwill in the preamble to some documents, there is no evidence in the record that would support a sale of a business interest.  The payments under the FSP are calculated on the basis of sales and commissions and are being paid at a rate of 60% of a high average tiered sales activity.  Lastly, Ms. Dunlap had no rights or legal relationship with the consultants and sales directors in her tiered Mary Kay activity.  Accordingly, her goodwill argument does not change the outcome of this case.” 2020 T. C. Sum. Op. 10, at p. 16.

That’s the point. If you’re paid after the fact based on the quantity and quality of the work you did as an IC, and didn’t pay income or SE tax before, you’re stuck.

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