C-corp "distributions"

[luke]

taxpayer (husband and wife) own C-corp and have been treating checkbook as though it was sole prop. C-corp has $24k loss (not including the non deductible personal payments). how should the $40k "distributions" be treated on 1120?
dividends? capital gains? return of capital (capital acct shows $110K in initial capital) or something else? Thanks in advance.

[AuditorTurnedGood]

Just a thought

salary? Otherwise it would seem thy are "selling off" shares of the company. Can you declare a dividend in a losing year? (As you might be able to tell, I have 0 C-corps in my practice).

ATG

[dsi]

Dividends. Or, you can report it as payroll, but then you must file all of the required payroll reports.

[Maribeth]

taxpayer (husband and wife) own C-corp and have been treating checkbook as though it was sole prop. C-corp has $24k loss (not including the non deductible personal payments). how should the $40k "distributions" be treated on 1120?
dividends? capital gains? return of capital (capital acct shows $110K in initial capital) or something else? Thanks in advance.

The payments can be one of 3 things: a dividend, a salary advance payment or a loan from the corporation to the shareholders (or a repayment of a loan from the shareholders to the corporation). Are you working on year 2008 or are you working on year 2009?

Maribeth

[JON]

Return of Capital?

I believe the questions on the 1120 will have one which says has the corporation paid dividends in excess of accumulated earnings (retained earnings). If that is a case then you have another form, and it takes it straight to schedule D on the 1040. It has been a few years.

[ChEAr$]

I believe the questions on the 1120 will have one which says has the corporation paid dividends in excess of accumulated earnings (retained earnings). If that is a case then you have another form, and it takes it straight to schedule D on the 1040. It has been a few years.

Right. And thank goodness I've never had to use that form 5452. This supposes that the corporation passed a resolution, or otherwise authorized said dividends in a meeting of board of directors. If so, 1099 div's will also be issued.

But to the OP, upon audit, IRS will deem these to be dividends, or at least they have in
previous cases.

[luke]

Thanks

for all the good comments - this was NOT one of my clients (but I have had clients like this) - taxpayer does whatever they want (without advice from the professional) and then makes some ridiculous comment like "thats what we pay you for" (figuring out how to handle STUPID)