Golf Instructor - SSTB?

Technical topics regarding tax preparation.
#1
golfinz  
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Thoughts on golf instructor as a SSTB? This particular instructor does not travel to events, has no pro golfer clients, works at a large resort and sees golfers that range in abilities, from low handicappers to the weekend hacker. Operates as an S Corp with a salary is 80k and a net of 93k. Matters because his wife makes between 200-400k, depending on bonuses.

This tax season is going to suck....

edit: haven't been on here much, hope everyone is well!
 

#2
WEISSEA  
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"has no pro golfer clients, "

Seems like SSTB is meant for athletic competitions not for teaching hackers.

Meaning of services performed in the field of athletics. For purposes of section 199A(d)(2) and paragraph (b)(1)(vii) of this section only, the performance of services in the field of athletics means the performance of services by individuals who
participate in athletic competition such as athletes, coaches
, and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards, and racing.
 

#3
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golfinz wrote:Thoughts on golf instructor as a SSTB? This particular instructor does not travel to events, has no pro golfer clients, works at a large resort and sees golfers that range in abilities, from low handicappers to the weekend hacker. Operates as an S Corp with a salary is 80k and a net of 93k. Matters because his wife makes between 200-400k, depending on bonuses.

This tax season is going to suck....

edit: haven't been on here much, hope everyone is well!


I think this is a tough one but we as practitioners should always settle on the side of the client as long as we believe we have a reasonable position. The performance of services in athletics.... I personally believe you could deduct it but could lose on audit.
 

#4
HowardS  
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Teachers are an SSTB? No way.
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#5
Nilodop  
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From preamble to prop. regs.
g. Athletics

The field of athletics is not listed in section 448(d)(2), and there is little guidance on its meaning as used in section 1202(e)(3)(A). However, commenters noted, and the Treasury Department and the IRS agree, that among the services specified in section 199A(d)(2)(A) the field of athletics is most similar to the field of performing arts. Accordingly, proposed § 1.199A–5(b)(2)(viii) provides that the term “performance of services in the field of athletics” means the performances of services by individuals who participate in athletic competition such as athletes, coaches, and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards, and racing. The performance of services in the field of athletics does not include the provision of services that do not require skills unique to athletic competition, such as the maintenance and operation of equipment or facilities for use in athletic events. Similarly, the performance of services in the field of athletics does not include the provision of services by persons who broadcast or otherwise disseminate video or audio of athletic events to the public.


I don't think that necessariy disposes of the matter for the golf teacher. He requires skills unique to athletic competition, right?

Compare, say, a CPA who runs a CPA exam prep school as a trade or business. Let's say that's all he does. He provides no accounting services to customers clients. In that business, as in the golf guy's business, isn't
the principal asset of such trade or business is the reputation or skill of 1 or more of its employees
?
 

#6
lucyko  
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He is a golf instructor and does not participate in athletic competition . I say non SSTB
 

#7
Wiles  
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the principal asset of such trade or business is the reputation or skill of 1 or more of its employees

I believe the IRS narrowly defined this to only include William Shatner & Shaquille O'Neal.
 

#8
golfinz  
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Thanks to all that replied! I do not think the 'reputation or skill' section applies here:

The final reg's clarified that the 'reputation or skill' was intended to describe a narrow set of trades or business' and that 'it would be inconsistent with the text, structure, and purpose of section 199A to potentially exclude income from all service businesses from qualifying for the section 199A....the final regulations retain the proposed rule limiting the meaning of the reputation or skill clause to fact patterns in which an individual or RPE is engaged in the trade or business of receiving income from endorsements, the licensing of an individual’s likeness or features, and appearance fees.'

Here's an example of a different golf instructor. Hank Haney. He gives out golf lessons but also gets paid to endorse products. His endorsement income would fall under the 'reputation or skill' section of 199A but could his teaching income qualify?

My guy could clearly be defined as a 'coach' but he is not 'participating' in the event nor does he have any golfers that compete (maybe a few high school players). He is merely teaching someone how to swing a golf club. 'The performance of services in the field of athletics does not include the provision of services that do not require skills unique to athletic competition.'

The 'reputation or skill' section is very narrowly defined and will not be the 'catch all' that we were worried when the proposed regs came out. The tough section, imho, will be 'consulting.' In the final regs, one example says that landscape design is a SSTB under consulting??
Last edited by golfinz on 24-Jan-2019 8:21am, edited 1 time in total.
 

#9
golfinz  
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Nilodop wrote:From preamble to prop. regs.
g. Athletics

The field of athletics is not listed in section 448(d)(2), and there is little guidance on its meaning as used in section 1202(e)(3)(A). However, commenters noted, and the Treasury Department and the IRS agree, that among the services specified in section 199A(d)(2)(A) the field of athletics is most similar to the field of performing arts. Accordingly, proposed § 1.199A–5(b)(2)(viii) provides that the term “performance of services in the field of athletics” means the performances of services by individuals who participate in athletic competition such as athletes, coaches, and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards, and racing. The performance of services in the field of athletics does not include the provision of services that do not require skills unique to athletic competition, such as the maintenance and operation of equipment or facilities for use in athletic events. Similarly, the performance of services in the field of athletics does not include the provision of services by persons who broadcast or otherwise disseminate video or audio of athletic events to the public.


I don't think that necessariy disposes of the matter for the golf teacher. He requires skills unique to athletic competition, right?

Compare, say, a CPA who runs a CPA exam prep school as a trade or business. Let's say that's all he does. He provides no accounting services to customers clients. In that business, as in the golf guy's business, isn't
the principal asset of such trade or business is the reputation or skill of 1 or more of its employees[/quote]?


I do not believe the bold would fall under 'accounting.' Final regs:

'The provision of services in the field of accounting is not limited to services requiring state licensure. It is based on a common understanding of accounting, which includes tax return and bookkeeping services.'

I think your CPA is teaching a class and is not a 'common understanding of accounting.'
 

#10
dave829  
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The only category that I see fitting this into is the field of consulting because Reg. 1.199A-5(b)(2)(vii) says:

the performance of services in the field of consulting means the provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems

and a golf instructor definitely does this. However, I am a bit confused by this statement in the same reg:

The performance of services in the field of consulting does not include the performance of services other than advice and counsel, such as sales (or economically similar services) or the provision of training and educational courses.

Doesn’t a golf instructor provide training?
 

#11
HowardS  
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I repeat. Teachers are not SSTB's. How can you possibly construe teaching somebody how to play a sport is "consulting" or "competing"?
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#12
dave829  
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HowardS, you stated in #4 and #11 that teaching isn't a SSTB. You're certainly entitled to your opinion, but I'm sure that I'm not the only one here who wants to know how you reached that conclusion.
 

#13
HowardS  
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https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf
Search the reg using terms such as "teach", "train","educate" or any other synonym for teaching and tell me what you find.
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#14
Taxaway  
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...means the performances of services by individuals who participate in athletic competition such as athletes, coaches,...

Doesn't require the individual himself to participate, and I'd say an instructor is certainly a coach.

I think it's a stretch that Weissea was making that SSBT only applies for athletic competitions:
Seems like SSBT is meant for athletic competitions not for teaching hackers.
going for a strict interpretation of 'competition.' I'd take it as a broader definition of the sport itself.
 

#15
HowardS  
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Aren't you ignoring part of your quote?:
performance of services by individuals who participate in athletic competition such as athletes, coaches, and team managers

My golf instructor isn't participating in athletic competitions and I certainly am not with my handicap! I'm just trying to get my golf instructor to teach me to get my 300 yard drives to go more than 170 yards.
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#16
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golfinz wrote:Thoughts on golf instructor as a SSTB? This particular instructor does not travel to events, has no pro golfer clients, works at a large resort and sees golfers that range in abilities, from low handicappers to the weekend hacker. Operates as an S Corp with a salary is 80k and a net of 93k. Matters because his wife makes between 200-400k, depending on bonuses.


Would that be a 'troublesome' percentage (salary less than 50% of the gross) that calls for troubles with the IRS? I have heard that S-corp owner wouldn't be safe unless they paid themselves at least 80% of the gross. With that in mind, the golf instructor should pay himself at least 13.84K (80% of 173K) in salary.
 

#17
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TaxItRight wrote:Would that be a 'troublesome' percentage (salary less than 50% of the gross) that calls for troubles with the IRS? I have heard that S-corp owner wouldn't be safe unless they paid themselves at least 80% of the gross. With that in mind, the golf instructor should pay himself at least 13.84K (80% of 173K) in salary.


No disrespect, but is that really true?

I do not recall there is a definite percentage to follow. I have always thought the reasonable wage is to be determined on a case to case basis depending on the particular situation of the S-corp and the nature of its business. Perhaps I was wrong?

I would really like to listen to what the bright minds in this forum have to say about TaxitRight's assertion.
 

#18
adamant  
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There isn't an established percentage to my knowledge, at least not a published one. Maybe one the IRS likes to use when it is identifying hogs waiting to get slaughtered.

I do know that when the IRS wants to throw the book at offenders, they will try to go scorched earth. There's a large medical group in St George that is facing this right now. Big Partnership operating entity with S-Corps owned by the docs. they are claiming 'Sham entities" that do not have a business purpose, and they want to characterize the majority of the profits as SE taxable. I'm not sure how this began, but it escalated to include a large portion of the partners.

Here's a pretty thorough resource that I found last year, it does talk percentages:
https://www.watsoncpagroup.com/s-corp-salary/
 

#19
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MeaningfulIdea wrote:
No disrespect, but is that really true?

I do not recall there is a definite percentage to follow. I have always thought the reasonable wage is to be determined on a case to case basis depending on the particular situation of the S-corp and the nature of its business. Perhaps I was wrong?

I would really like to listen to what the bright minds in this forum have to say about TaxitRight's assertion.


I have seen nothing from the IRS to help clarify what reasonable compensation is, other than yes, it is on a case-by-case basis. I HAVE seen some CPA firms try to place percentages on it...came across one publication yesterday from a firm where they based it on how they value business entities for sale, and applied it to reasonable compensation. For professionals, they are indicating 80-90% should be reasonable compensation. I disagree with that approach, as replacement cost or earnings potential as an employee elsewhere, in similar role, play a factor. I know a number of professionals that make more self-employed than they could by becoming an employee elsewhere, though I realize that is not a sole factor. I keep trying to get clients to bite on RC Reports because I am curious about their approach to determining reasonable compensation, but none bite.

FYI, Bradford Tax Institute takes the position that S-Corp paid health insurance as reported on W2 contributes to reasonable compensation even though it only increases Box 1, not Boxes 3 and 5. Upon reading the code they used as support, it as logical.
 


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