Appraiser Trainee Running Their Own Business?

[Dale Floyd]

Some hospitals are owned by non-medical folks. I read some while back about the career of the CEO of a legal firm who never attended law school. We probably all know of a few real estate firms that are operated by people with no real estate license. There are many banks owned by people who have never worked in finance. My point earlier is that business ownership is not the same as supervision. Can Junior the trainee start an appraisal company and bring his retiring CG grandfather aboard as a consultant of sorts with oversight authority? Since we all know of banks who hire auditors with powers to regulate the activities of their own directors, I would bet it’s not that difficult to figure out. And states’ use legal language that is pretty thrifty when it comes to specific definitions of employees, versus that of subcontractors. One is supervised and one is not.

I’m betting there’s a soul or two out here who have somebody else named as an owner or co-owner in their appraisal firms for business income, liability, or legal purposes who have no appraisal experience of any kind. Actually - I’m wondering if an appraiser somewhere in this country, who draws disability or social security, has a non-appraiser wife or husband who owns the appraisal company and reports appraisal income under their SSN.

 

[bnmappraisal]

I agree, Dale, there probably are many examples out there as you describe above

My point is the OP should check with their state (Pennsylvania) to see if they allow a trainee to own the firm. As I posted, FL has specific law regarding this. Maybe PA does not

Personally, I'd be surprised if it is allowed, but ... I've seen/heard stranger things!

To the OP, please keep us updated what you find out. I'm interested in hearing anyway

 

[The Warrior Monk]

The issue here is that it is a top down discussion, rather than a bottom up discussion. Any discussion always starts with the facts. The most important fact is that the trainee is under the complete supervision and control of the supervisor, and that the trainee cannot be independent of the supervisor.

So even if the trainee is allowed to own the company and hire a supervisor as an IC, when it comes to the trainee's work, the trainee is not an IC of the supervisor. All the laws pertaining to the the trainee being under the direct control of the supervisor still would apply. That's why I recommended the advice of an attorney/accountant. A complex structure of the company would apply if such a scenario were even permitted, and it would have to be set up properly to avoid all the possible pitfalls.

I've been trying to think of scenarios were trainees (those required by law to be supervised, and requiring a license) can own a company and employ their supervisors, and can't come up with any.

 

[DTB]

The issue here is that it is a top down discussion, rather than a bottom up discussion. Any discussion always starts with the facts. The most important fact is that the trainee is under the complete supervision and control of the supervisor, and that the trainee cannot be independent of the supervisor.

So even if the trainee is allowed to own the company and hire a supervisor as an IC, when it comes to the trainee's work, the trainee is not an IC of the supervisor. All the laws pertaining to the the trainee being under the direct control of the supervisor still would apply. That's why I recommended the advice of an attorney/accountant. A complex structure of the company would apply if such a scenario were even permitted, and it would have to be set up properly to avoid all the possible pitfalls.

I've been trying to think of scenarios were trainees (those required by law to be supervised, and requiring a license) can own a company and employ their supervisors, and can't come up with any.

Nobody, other than you-twice, is operating with that premise.

Again,

Firm (whomever owns it)
Supervisor works for the firm as an IC.
Trainee works for the firm, under the supervisor, as an employee of the firm.

IMO you're overthinking this.

 

[The Warrior Monk]

Nobody, other than you-twice, is operating with that premise.

Me, the IRS, and the Department of Labor.

Trainee works for the firm, under the supervisor, as an employee of the firm.

More property, the trainee who may not work independently and is under the absolute control of the supervisor he is paying.

IMO you're overthinking this.

As always, not overthinking this. It's not my opinion; I'm just regurgitating the advice of others. It's a great flaming big no on the advice of accountants and attorneys here. It's possible that in other states this may be allowed at the state level, but it's not going to pass muster with the IRS, at least what I've been told.

 

[DTB]

Me, the IRS, and the Department of Labor.

You really think that a person (call him an appraiser trainee if you'd like) can't be an employee of the firm that he owns while having a senior position filled by an IC? Prove it.

So even if the trainee is allowed to own the company and hire a supervisor as an IC, when it comes to the trainee's work, the trainee is not an IC of the supervisor.

Who, beside you has the trainee as an IC? Maybe that's what you're hung up on?

More property, the trainee who may not work independently and is under the absolute control of the supervisor he is paying. So what? The trainee is not working independently at all, is he?

As always, not overthinking this. It's not my opinion; I'm just regurgitating the advice of others. It's a great flaming big no on the advice of accountants and attorneys here. It's possible that in other states this may be allowed at the state level, but it's not going to pass muster with the IRS, at least what I've been told.

Even the FL license law does not reflect that, unless you believe that a trainee MUST be an employee of each and every supervisor that they have ever worked under. Even for a single assignment. That would be ridiculous.

To make it more plain, envision a trainee at a large appraisal firm. Who is the trainee's employer? I pretty sure that wouldn't be his direct supervising appraiser.

Let's make it even more plain, shall we. Joe Blow decides to open an appraisal business. Joe knows nothing about appraising but thinks he can get bucketloads of business. And he does. Then he hires appraisers, employees or as IC-difference isn't germane to this scenario and all goes well for a few years.

Joe then gets the itch to become an appraiser, does the course work and needs experience hours, a supervisor and mentor. Is it your position that one of Joe's longtime appraiser employees can not supervise Joe's assignments and that Joe must now find some other arrangement to fulfill his appraiser dreams?

...and the IRS frowns upon this scenario for some reason?

 

[The Warrior Monk]

...and the IRS frowns upon this scenario for some reason?

Frown is the wrong word. In fact, it might be just the opposite, because it's a way to squeeze more money out of people.

From the IRS website:

The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
​

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined

In the case of a trainee, the supervisory is 100% responsible for the appraisal workproduct of the trainee, which always includes what will be done and how it will be done. Even if the trainee is doing all the work, the supervisory appraiser is still 100% responsible for what was done and how it was done.

If you want to argue that a trainee doesn't have to be an employee, I'll concede there there may be some workaround in some states. But per IRS, the trainee most definitely cannot be classified as an independent contractor.

Do many supervisors treat trainees as ICs? Sure. Do these people have to pay fines, back taxes, etc. when caught? You bet.

 

[DTB]

To make it more plain, envision a trainee at a large appraisal firm. Who is the trainee's employer? I pretty sure that wouldn't be his direct supervising appraiser.

If you want to argue that a trainee doesn't have to be an employee, I'll concede there there may be some workaround in some states. But per IRS, the trainee most definitely cannot be classified as an independent contractor.

Actually, I am arguing the exact opposite in this case.

Supervisor-1099 Independent Contractor

Trainee- Employee of the firm. The same firm that hired the Supervisor.

I have no idea how this became twisted into an IRS issue.

What would you say if the trainee received no pay but was under direct supervision?

 

[The Warrior Monk]

Actually, I am arguing the exact opposite in this case.

Supervisor-1099 Independent Contractor

Trainee- Employee of the firm. The same firm that hired the Supervisor.

So what you're saying is the Supervisor that directly controls the trainee, who directly controls the supervisor.

I have no idea how this became twisted into an IRS issue.

It's both an IRS and a state issue when it comes to fines and back taxes.

[/quote]What would you say if the trainee received no pay but was under direct supervision?[/QUOTE]

I discussed this issue in the past. That could be done, BUT is would have to be set up properly, which a small shop typically wouldn't want to go through (Set up an educational school or program within the firm, etc.). Just simply having someone work for free while the supervisor receives all the compensation typical runs afoul of state labor law, since it is considered exploitation.

As I've said previously don't take my work for it; speak to the appropriate professional; e.g., accountants and attorneys. I've known people that have received rather hefty fines for misclassifying contractors. There have even been some on this forum that have been audited over this, so we're not speaking in just the hypothetical realm.

 

[DTB]

So what you're saying is the Supervisor that directly controls the trainee, who directly controls the supervisor.

The supervisor directly controls the trainee via appraisal regs not employment law. The supervisor is an independent contractor which by nature of employment law requires that he/she not be directly controlled by the firm that hires them.

The firm allows the supervisor to do what they need to do in a manner in which they need to do it to get the job done. The job is to directly supervise the trainee.