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Yesterday I got a mail from IRS, telling me that I failed to report a $3500 "nonemployment compensation" plus a $495 "self-employment tax" for year 2002.

The $3500 was the bonus paid to me by my boss from his own self-employed business, while I was on the payroll of an insurance company that he has affliation. Here I have two issues:

1) My boss gave me the bonus check on the last day of 2002 and I made sure that I deposited it into the bank after the new year. As I read from somewhere that this way I could treat it as the next year's income, and that was what I did: I treated it as 2003 income instead of 2002's. But obviously my boss' reporting didn't treat it that way. If I was right on this, I could at least waive the $83 interest penalty calculated from 4/15/03 to 7/21/04? Can a bank statement help me?

2) Although I didn't draw my salary from my boss's own business, but I was employed by him to support his business. He is the top producer of the insurance company and he paid me through the insurance company's sales support allowance. Therefore to me, the bonus, though paid from his own business, was totally an "employment compensation", and should not be taxed as a self-employment compensaiton. But how do I convince IRS about this?

I really appreciate any advise on the two issues! I won't be able to get access online until 7/6/04 as I will be on vacation. So if there is any questions for me, I will answer by then.

Thanks much in advance for your help!


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