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my question has to do with tax compliance in the way of W9 & Direct Deposit in the way of a stipend that is paid monthly to host an international student. My husband is in the military and has received orders to relocate overseas. The student we hosted last year begged to stay with us again for his senior year of high school. Because we did not want to sell our home, we asked my mother to move from West Coast to "home sit" for us while we're gone for 2/3 years. We came up with an agreement for her to host our student in exchange for paying rent. She and my husband signed the host agreement. My husband signed the W9 and Direct Deposit bank information form. The organization says we cannot sign the agreement and the W9 and payments must be in my mother's name because we will not be in the home. However, we own the home and the vehicle that will be used for shelter and transportation of the student. They are telling us my husband cannot sign the agreement therefore he cannot sign the W9 and receive the stipend/payment. Is this legally true? Again, we are the homeowners. We will not be physically present but my mother has agreed to care for the student in our absence in exchange for not having to pay rent. Which means we need to receive the stipend/payment and not her.

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It sounds to me like you are handwaving a bit of this here, but the technically correct way to do this is:

  • Stipend goes to your Mom, she pays taxes on it as income as appropriate
  • Your Mom pays stipend to you, after her income taxes if any (This is up to you all to work out, IRS doesn't care about this step)
  • You pay taxes on the rent your Mom would have paid if she were an unrelated person ("fair market value") - not necessarily the amount of the stipend.

What you're describing above is basically an in-kind transaction - you're offering her to live rent free, in exchange for her staying at the house, doing anything necessary with the exchange student, and watering your plants or whatnot.

As such, she is paying rent - just not in cash; but it's not really different from if she were paying rent from the IRS's point of view. Look at publication 525, example 23, this is pretty close to the same. You'd have to consider the fair market rent she's not paying as income, and then a gift in the other direction (or, payment from you to her for her services - each of you really would have some income here).

So the service is right in my opinion; they're paying the stipend for her services in watching the child, and feeding them, etc.; she should be paying you then this stipend in order to make up for the rent/etc., but it's really a two step process.

I suspect there's more to it than this, though; it's also that the service doesn't want to pay you because they want to have a relationship with the person who will be responsible for the child, and know that there will be such a person there - if they have a relationship with you only, and you're not there, how do they know the child's being properly taken care of? While you have the best of intentions here, it is not unheard of to have issues where someone takes the money for the stipend and the student ends up basically on their own; so the agency is protecting the student by requiring the responsible adult at the location to be their point of contact (and point of payment).

(The last paragraph is just my supposition - not legal advice or opinion.)

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