New client has a friend own "his" corporatiion ....

[LCP]

.... so that he could load up on fringe benefits.

Definately creative and clearly against the spirit of the tax law ....... but I can't say that there is anything absolutely wrong with it.

I did question him on the details and was clearly a little skeptical. He told me that he was getting ready to shut it down this summer, But with a twinke in his eye, pointed out that he was going to collect unemployment that he wouldn't have otherwise been able to.

Can we stay away from right or wrong ....... and discuss whether this is a viable tactic?

[JohnH]

It might be viable, provided the "friend" is a real person dumb enough to get involved in his scheme.

And I agree that there's no reason to discuss right and wrong - you'd be better served discussing liability for participating in something that may be fraudulent. (That would be YOUR liablity, not the client's)

[jimmcg]

This is simply a question of whether or not you feel comfortable working with this client. You are the only one who can evaluate the integrity of the new client and make this decision. If you are not comfortable working with him tell him to go elsewhere. Life is too short and your reputation is too important to do otherwise.

[LCP]

Interesting ....... what exactly is fraudulent about it?

How is this scenario different from a large corporation with multiple shareholders who have nothing to do with operating the business ........ and a few executives that run the company?

[JohnH]

I probably jumped the gun when I suggested something about it could be fraudulent, but the tone & tenor of your original post caused my antennae to go up. That, plus your own observation that you're a little skeptical.

He's apparently already in business, loading up on fringe benefits, but intending to shut it down this summer. Something about the scenario doesn't pass the smell test. What fringe benefits is he "loading up" on that he couldn't do if he were the sole shareholder? And if the business is profitable enough to load up on said fringes, why is he planning to shut it down?

What's in it for the person who is ostensibly the owner or is he just a dope who's taking some sort of unknown risk for his slick buddy? If the friend is getting something financial out of it, then that's a cost the corp wouldn't have if that person were not involved. Also, if the friend looks into a few things such as "responsible party" for things like unpaid trust fund payroll taxes, he might think twice before risking his financial well-being for a buddy who's looking to somehow game the system (again, your "twinkle in the eye" observation). Just how far is the non-owner operator willing to go, and who's going to be left holding the bag if he slips up?

I'm just stepping back and looking at the big picture. My first question would be why are they doing this? My second question would be do I want to be involved? I think jimmcg put it in perspective. You are the only one who can evaluate it, and you clearly have some questions about it or you wouldn't have posted the question to begin with.