Reference no: EM132847134

Question - Tim Reid, a retired chartered accountant entered into a verbal agreement with Wilkenson Associates, a regional office of a national accounting firm, to provide his talent and energy in locating new clients and promoting the firm's products to existing clients. As part of the agreement, Tim was responsible for contacting prospective and existing clients identified as targets by partners of Wilkenson to promote the firm's resources. Preliminary discussions and meetings with existing and prospective clients would take place in various places, including the offices of Wilkenson or the client and in restaurants. Tim was reimbursed for certain expenses related to these promotional activities (e.g., meals and entertainments with clients). He paid for all other expenses (phone bills, travelling, etc.).

If Tim was able to gain some interest in Wilkenson's services from a new client or an existing client, he would arrange a marketing meeting between the client and a partner of the firm. He was involved in the preparation and would attend the meeting with the client. In preparing for the meeting, Tim would direct the work of his assistants in the development of promotional material, such as power point presentations, flyers, and handouts. He would be in charge of the preparation process with input from the Wilkenson partner and staff on the technical content and format of the meeting and/or presentation. Wilkenson would pay the cost of the presentation materials, and provide all equipment including hardware and software necessary to complete the job. Tim was responsible for hiring his own assistants, who were paid by Wilkenson.

Some of the work was done at Wilkenson in whatever space was available, and Tim often worked from his office at home, where he paid all the expenses for working at home.

Tim was paid $1,900 every two weeks, as a retainer or guarantee for his services. Under the agreement, he could not work for any other accounting firms. He was also paid an additional $5,000 for every successful marketing meeting resulting in a new client with billings of a minimum of $25,000 in a 12-month period from the date of the meeting or resulting in new work from an existing client with billings of a minimum of $35,000 in a 12-month period from the date of the meeting. He received nothing extra if a client meeting was unsuccessful or billings did not meet these targets. To be paid, he had to invoice the accounting firm.

Required -

(i) Is Tim, in this situation, an employee of Wilkenson or self-employed? In presenting your answer, discuss the tests that are applied in this type of situation and consider how the facts are related to these tests.

(ii) Discuss the tax treatments on the various expenses incurred and paid by Tim.