student loan payments from mother through company

From: <spencer.c.anderson_at_gmail.com>
Date: 11 Aug 2006 15:28:58 -0700

I'm trying to help my wife, Amy, with a letter we just got from the IRS. Before we were married, her mother paid for Amy's student loans by adding Amy to the company payroll. Her mother owns a sole-proprietorship and she is the only person working for that company; so it's all of her own money. To make payments easier to schedule, she added Amy to the payroll, and "paid" Amy the money for her student loan payments every month.

When Amy got "paid", she sent the money off to pay her student loans. When Amy did her taxes that year, she didn't claim the money she was paid by her mother since she thought it was just for her student loan payments, not regular income.

Now, she got a letter in the mail saying she owes the IRS $500 in back taxes because of $6500 in revenue that she didn't claim on her tax return.

Should we just pay the $500 and be done with it, or can we appeal because the $6500 was really a gift from her mother to pay for her student loans? Thanks for any advice.

Spencer. Received on Fri Aug 11 2006 - 15:29:03 PDT