Posts by Terry Miller17

rowdyhawk25 said:Look, in this specific scenario, it doesn't matter if the payment is being issued by the federal government. The key thing is that the outgoing invoice isn't addressed to them—it's addressed to the client. Even if someone like Pero Perić stepped in and made the payment on the client's behalf, the logic remains the same. You handle that outgoing invoice exactly how any other sole proprietor would handle their standard billing.

I find myself agreeing with that assessment. I suppose I am just searching for some kind of legal footing to back it up, but I seem to be coming up empty-handed... I am looking for something I can point to in black and white—you know, like being able to say, "According to Section X of the Law"—but I honestly have no idea where to begin my search.

rowdyhawk25 said:It's pretty straightforward: he issues a standard outgoing invoice to his client. Once that payment hits his business account, the subrogation settles the receivable, and the Sales Tax liability gets recorded in the books. Honestly, though, looking at the setup, this feels less like subrogation and more like an assignment of funds.

Well, sure, an assignment—though they prefer to label it a set-off, but the semantics don't change much.

But does one still recognize the Sales Tax liability? I have encountered certain individuals who insist that payments from government agencies cannot include Sales Tax, arguing instead that these are merely base payments without tax included—even though they haven't provided me with any official documentation backed by law to support that. Their logic seems to be: the government pays you, and then you simply pay them back...

It reminds me somewhat of how insurance companies operate.

I find myself facing a bit of a dilemma regarding a sole proprietor who also happens to be an attorney.

I am not entirely certain if this falls within the scope of our discussion, but perhaps someone could point me in the right direction, as I am struggling to identify which specific section of the tax code would govern this situation.

To provide some context: the attorney represented a client in a lawsuit against the government and was successful. A lien agreement has been established, stipulating that instead of the government paying the client directly, the funds will be paid to the sole proprietor, who will then settle the debt owed to their client.

My primary concern involves how to properly report this to the IRS. Since sole proprietors typically recognize their tax obligations based on when payments are actually received, I am quite puzzled by how to handle funds disbursed from the federal treasury. Should I record this payment as a taxable event for sales tax purposes, or should the payment simply be treated as the underlying base amount? I hope my explanation hasn't been too convoluted.

I WOULD GREATLY APPRECIATE ANY INSIGHTS YOU MIGHT HAVE.