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View Diary: James O'Keefe to Pay $100K Settlement to Former Acorn Employee (152 comments)

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  •  ColoTim - if you have legal expenses (1+ / 0-)
    Recommended by:

    there are ways to have others pay the legal fees without the payments being classified as income to you.

    "let's talk about that"

    by VClib on Thu Mar 07, 2013 at 04:18:44 PM PST

    [ Parent ]

    •  Is that true for settlements/fines? (2+ / 0-)
      Recommended by:
      ericlewis0, ColoTim

      I thought that was just, well, 'legal fees'. Your lawyer, etc.

      •  The payor can pay the fine directly to Mr. Vera. (2+ / 0-)
        Recommended by:
        VClib, AllisonInSeattle

        It doesn't have to pass through O'Keefe at all.

        •  but isn't it still taxable? (2+ / 0-)
          Recommended by:
          HappyinNM, ColoTim

          When I worked at a company, they reimbursed business expenses but would not reimburse anything the IRS did not consider a valid business expense because these would have had to be declared as taxable benefits.

          •  Maybe I don't understand your question, (0+ / 0-)

            but it seems you're confusing different things. For we average folks, all earned income is taxed. When you received your paycheck, that earned income was taxed. You then took part of that already taxed income, and used it to pay for expenses incurred as part of your job. Your employer then reimbursed you for laying out money on his/her behalf. That money had already been taxed when you received it as part of your paycheck. It's the same as if your employer borrowed money from you. It's not income; it's a short-term loan, and is not taxable.

            In the O'Keefe case, if his benefactor pays his debt for him, it's not earned income for him, and is not taxable.

            •  it's not that way (1+ / 0-)
              Recommended by:

              You go on a business trip; you charge x y and z on your corporate charge card. The IRS considers x and y legitimate business expenses for your company to pay, but not z. So you file an expense account but you may declare only x and y. Whether the company pays the card directly, or pays you a check to pay the card, it is considered as if the company incurred these expenses. But if it paid also z, then the IRS would require that (a) when you file your taxes you declare z as extra income, and (b) the company must include z on their W2 for you. This would again be true whether you paid z and the company reimbursed you, or whether the company paid z without the money ever going through your hands. Because the company does not want to go through this hassle, and does not want you to "forget" to declare z, they just make a rule that they will decline your attempt to put z on the expense account. And actually they prefer that you know the rules ahead of time so that you put z on your own card.

              In the O'Keefe case, the IRS should analogously rule that the benefactor paying his judgment is income to him, whether it passes through his hands or is paid directly.

              •  In your case, (0+ / 0-)

                the employer should fire you for charging personal items on their credit card. They're being nice if they're just adding it to your income.

                In the O'Keefe case, "should" is the operative word in your last sentence. I don't know tax law well enough to know how tax on gifts works, but even if the benefactor gave the money to O'Keefe, it would be considered a gift, not income. If paid directly to Mr. Vera, it wouldn't impact O'Keefe's filing at all.

                •  from the (0+ / 0-)
                  In general, if you are liable for a debt that is canceled, forgiven, or discharged, you will receive a Form 1099-C (PDF), Cancellation of Debt, and must include the canceled amount in gross income unless you meet an exclusion or exception. If you receive a Form 1099-C but the creditor is continuing to try to collect the debt, then the debt has not been cancelled and you do not have taxable cancellation of debt income.
                  There are exceptions, in particular for certain mortgage debt during the foreclosure crisis, but otherwise if someone pays a debt for you it is indeed income for you whether it passes through your hands first or not.

                  They don't fire you for charging non-allowable business expenses on the corporate card; they just make you pay them. Now if you do not pay them, that's another story!

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