Tax Aspects of an Author’s First Book

Editor: John L. Miller, CPA

What tax situation do Jimmy Carter, Laura Bush, Barack Obama, and Hillary and Bill Clinton have in common? They all paid self-employment (SE) tax on their first book, perhaps unnecessarily.

The IRS’s longstanding position is that “if an individual writes only one book as a sideline and never revises it, he would not be considered to be ‘regularly engaged’ in an occupation or profession and his royalties therefrom would not be considered net earnings from self-employment” (Rev. Rul. 55-385; Rev. Rul. 68-498). Even when the book is revised, the Tax Court has held that only the royalties from the revised edition are subject to SE tax (Langford, T.C. Memo. 1988-300, aff’d without published opinion, 881 F.2d 1076 (6th Cir. 1989)).

The IRS’s position does not appear to be well known. Jimmy Carter paid self-employment tax on his first book, Why Not the Best?, published in 1976. Hillary Clinton dedicated all earnings—over $1 million—from her 1994 first book, It Takes a Village, to charity. She paid tens of thousands of dollars of self-employment tax on the book royalties. In 2004, Bill Clinton paid SE tax on his first book, My Life, as did First Lady Laura Bush on her recently published first book, Read All About It! Barack Obama’s first book, Dreams of My Fathers, originally published in 1995, was republished last year, and he paid SE tax on it. Obama also paid SE tax on his second book, The Audacity of Hope, published in 2006. (All data are from publicly released tax returns, available at the Tax History Project.)

Although Obama has written two books, an argument can be made that Obama’s second book, written 11 years after the first, should also be exempt from SE tax because an 11-year gap shows that he is not “regularly engaged” in book writing. That may not be a position a presidential nominee is prepared to take, but it might be considered by lowerprofile writers.

Many individuals who are one-time authors may not have the resources to easily pay the SE tax. Any preparer who has had a client remit SE tax on royalties from a first book should carefully consider if it was necessary to pay the SE tax and if a refund claim should be filed.

EditorNotes

John L. Miller is a faculty instructor at Metropolitan Community College in Omaha, NE. Jay Starkman is a sole practitioner in Atlanta, GA.
The editor and contributors are all members of the AICPA Tax Division’s IRS Practice and Procedures Committee.
For further information about this column, contact Mr. Miller at johnmillercpa@cox.net.