Scorp officer participation

[Snaggletooth]

Speaking of, aren't you up pretty late ? Nice to see you, don't think you've been around lately.

I've been around, Ms. Hoffman, in fact sometimes ubiquitous. I do have multiple sign-ons, as my consulting takes me to four different customers with four different computers. Each separate computer requires a different sign-on under this message board security rules.

"Corduroy Frog" and "Snaggletooth" are both yours truly, as these developed on my home computer, and I do change. Why? I am not able to post for more than a few weeks without making a colossal stupid post or revealing a serious dearth of tax savvy. I can thus stop posting whilst this deficiency remains prodigious in the minds of readers, and use another handle. On some occasions, there may be a rare display of competency, and an identity can surface as the situation dictates.

Snaggletooth will be around awhile, conjuring up images of indigenous local population.

At your service m'am -- Ron Jordan, Manchester, TN

[BHoffman]

"Why? I am not able to post for more than a few weeks without making a colossal stupid post or revealing a serious dearth of tax savvy. I can thus stop posting whilst this deficiency remains prodigious in the minds of readers, and use another handle. On some occasions, there may be a rare display of competency, and an identity can surface as the situation dictates."

You are FUNNY!!! Thanks for the vote of confidence.

FYI: When I make dumb posts I just slink off into lurker-land for awhile

[ChEAr$]

comments

I'd agree with you, Harlan, but that FS-2008-25 specifically states that if de minimus services were rendered and no drawings were taken, then no salary has to be made. This fellow's daughter suffered a bad car accident and he has been spending most of his time helping her with rehabilitation. He also has a Sch C landscaping company and spends the rest of his time with that. I don't know yet, but it could be that his profits from the Sch C landscaping endeavor will max out the SS anyway.

This leads to a larger problem. Should we intentionally have our clients overpay taxes to avoid "red flags"? That isn't fair. Like most of us, I'm scared of the IRS and the power of the government. Fear aside, this particular guy is covered under that FS in every way. His daughter was in a horrid car accident. He's been very busy every day helping her with rehab so she can walk again. He also has that side business. He honestly did not take any drawings, and he honestly did not materially participate in the daily operations nor did he make any management decisions for that SCorp. Accordingly, he did not take a salary as he provided no services. If IRS questions his return, then we'll respond adequately.

I don't want to get buffaloed into advising clients to roll over on deductions and other tax matters to which they are legally entitled. I want to prepare good tax returns based on the law and the facts. This is bad news and I don't like it at all.

In the OP you didn't say how much time he actually worked in the corporation; just "less than 500 hours" so really I didn't know. I reckon the 500 hours stuck in my mind as the
real time. But he still needs some salary I think based on number of actual hours spent
doing the work or managing the help; or making decisions. Sure he did SOME managing.

the fact there is another business would have no bearing during audit, since each one
stands on it's own.

Of course I agree with you we want true returns with only valid tax deductions. Wouldn't have it any other way. (grin

[ChEAr$]

It may all even out

For what is not paid to the 100% shareholder as salary just increases the amount on line of of the K1. Only difference is the employment tax burden.

And FWIW, Snaggletooth (if that IS your right name! hah hah!)
I sign onto this board both here at office and at home with same id.

[BHoffman]

I hear you, Harlan. The bookkeeper swears he comes in once a week for about an hour to sign checks and otherwise does nothing else.

[DaveO]

I would still attach some value to what he does. Even an hour a week at $20 per is $1040. At least it shows you are not ignoring the compensation issue.

I, like most everyone else on this board, hate working from a defensive position all the time fearful of an IRS audit. A couple of years ago we went through a very nasty one. New auditor six months with the service, wet behind the ears with an ax to grind. He literally went through every check and deposit of every bank account to the point of questioning $10 items. The audit started in December and by mid Feb we had had enough and asked for a meeting with his manager and gave them two choices. Assign the case to a new auditor or put it on the shelf until May. I thought maybe he would be a bit more reasonable after cooling his heels but came in the same way. Ranting and raving quoting code section like a fire and brimstone preacher. Finally by September he wrapped it up. He audited 2 years and wanted the current year which I refused to complete until he issued his report on the two years he had open. That return was pulled for audit the next year. Different auditor, different result. I was in and out in 2 hours with a no change on his "C" with an adjustment on his wifes "C" due only to a math error. No bank record analysis, no poring over $5 rebate checks from Best Buy.

The point is you never know who is behind door number 3. What is the cost to your client of waving that red flag unnecessarily?

[BHoffman]

Thanks for responses. I'll give it some more thought. Maybe report officer compensation on the 1120S and other income subject to SE tax on his 1040.

[Gretel]

Unemployment department probably wants to have their share too. I have a S-corp.#1, sole owner, employee runs biz. Same owner manages another # 2 of his S-corps with salary. He basically signs papers and makes some management decision for #1, so we put 10 hours a month on payroll after UE audit.

[BHoffman]

Thanks, Gretel. Might have to cross that bridge. Going to wait and see.