Funeral and other expenses by scorp

[TAX]

Client S corp had an employee who passed away at work because of accident.

(1) Client was order to pay funeral expenses of $8000 as workman comp benefit.

(2) Also Scorp was order to pay $464 every month until daughter reaches 21 year of age or gets married.

Are these expenses deductible?

[Davc]

If they were not carrying WC insurance and were required to have under state law, then probably not. You can't get a real answer without more details.

[thomtax]

Some states, such as mine, have a provision for small businesses to be "self insured", that is they do not carry a policy but are required to pay any actual expenses themselves. I cannot see that paying these expenses would differ from being able to deduct the insurance premiums. I feel sure that this will vary state by state.

[TAX]

If they were not carrying WC insurance and were required to have under state law, then probably not. You can't get a real answer without more details.

You are right. They did not have insurance at the time and this accident happened. I think self insurance clause is not allowed in Illinois(?)

It is just like penalty and I think on that basis deduction may not be allowed.

[TAX]

If they were not carrying WC insurance and were required to have under state law, then probably not. You can't get a real answer without more details.

Does client also need to issue 1099?

[Snaggletooth]

Disagree

If they were not carrying WC insurance and were required to have under state law, then probably not. You can't get a real answer without more details.

Statutes of all manner are routinely broken, either by ignorance, financial distress, facilitous incapacity, whatever. Does not mean a business expense is not a valid deduction. An uninsured corporation has higher profits in years where it doesn't incur
premiums than it would if they paid insurance. And in those years, the IRS has their
hands stuck out for the higher profits.

I believe the award should be a deduction as a fringe if nothing else. The full liability of the annual payments should be discounted and deducted in similar fashion, with annual accruals of interest to be deducted also when paid.

Imagine a company failing to pay $1000 in Use tax to the State of Ohio for goods imported and used by the company. Profits for this company are $50,000. Imagine the IRS auditor saying, "Hey you broke the law when you didn't pay Ohio, so your profits should only be $49,000 and we will tax you accordingly." Ridiculous.

[JON]

I do not know,

but wrongful death claim would not be taxable to the receipent... Let us know when you find out. Obviously this deduction would be a lot more than the WC or any other kind of insurance would be. I remember talking to a manufacturer of airplane parts and asking him what kind of insurance he carried. He said the same type as other businesses at the same cost except for the addition of ground insurance. I said what is gound insurance? He said if one of the planes hits the "ground" because of his part there is no coverage that would keep in business, it insures that he would have to do something else.

[Davc]

Statutes of all manner are routinely broken, either by ignorance, financial distress, facilitous incapacity, whatever. Does not mean a business expense is not a valid deduction. An uninsured corporation has higher profits in years where it doesn't incur
premiums than it would if they paid insurance. And in those years, the IRS has their
hands stuck out for the higher profits.

I believe the award should be a deduction as a fringe if nothing else. The full liability of the annual payments should be discounted and deducted in similar fashion, with annual accruals of interest to be deducted also when paid.

Imagine a company failing to pay $1000 in Use tax to the State of Ohio for goods imported and used by the company. Profits for this company are $50,000. Imagine the IRS auditor saying, "Hey you broke the law when you didn't pay Ohio, so your profits should only be $49,000 and we will tax you accordingly." Ridiculous.

As I stated, we need more details. Your analogy is what's ridiculous. Imagine the company being caught by the State of Ohio and paying a penalty. It wouldn't be deductible.

[outwest]

expense vs penalty

I think the question boils down to whether the payment is ordinary and necessary expense or in the nature of a penalty.

Making some assumptions about the details, here's how I see it.

One misconception is if something is involuntary makes it a penalty. Property taxes are involuntary but not a penalty. A penalty is normally paid to a government agency for some violation rule or statute. This seems more to me to be a case of the company could have covered this expense with a fully deductible work comp insurance policy. Now they get to cover this with a much larger (fully deductible) direct payment. The cause of the payments arose in the ordinary course of business of the company. It is necessary because the court or administrative agency said they must.

Now, if the administrative agency also charged them something for failure to carry the policy, that is clearly a penalty.

In Snaggletooth's example above, the $1000 tax would be a ordinary expense even though paid late but a late payment penalty would be, well, a penalty.

[thomtax]

As I stated, we need more details. Your analogy is what's ridiculous. Imagine the company being caught by the State of Ohio and paying a penalty. It wouldn't be deductible.

Sadly, personal attacks such as this are why many well meaning people hesitate to give their thoughts any longer. There can be disagreements without insults.

[David1980]

Sadly, personal attacks such as this are why many well meaning people hesitate to give their thoughts any longer. There can be disagreements without insults.

I didn't see a personal attack. He attacked the analogy.

[Snaggletooth]

Attacks

Sadly, personal attacks such as this are why many well meaning people hesitate to give their thoughts any longer. There can be disagreements without insults.

Thanks for noticing, Thomtax. I can handle an attack if that's what it was. Davc is normally one of the astute sources and it is good to have his knowledge with us.

The example I gave was quite extreme, and sometimes to follow one's thinking to its end reveals its folly in no more exemplary way. In fact, he might have even felt insulted himself. Outwest actually did a better job explaining my position than I did.

[thomtax]

Thanks for noticing, Thomtax. I can handle an attack if that's what it was. Davc is normally one of the astute sources and it is good to have his knowledge with us.
.

You are welcome.

Yes, I happen to agree with you in that DaveC is one of the knowledgeable good people posting. I guess that the response caught me by surprise and that was why I reacted. However, I have noticed that there are a lot of the people in the know that used to post to this board that you no longer see here. And that is our loss. Even if it does not affect anything I am doing, I am constantly learning from others for the future. And, quite frankly, I am one of those that mostly just read the posts now, and will seldom post a position, even if taken from a reputable source.

And I do not want to cause any problems with anyone else and probably could have put it a little more diplomatically. I apologize for this failure.

LT

[TAX]

More Detail

Sorry for less detail in the original post. Original post was based on information from one shareholder who told me that they were order to pay but now I know it was from their lawyer and not any govt. agency.

Main shareholder told me what actually happened. The case is still pending. Workman comp Agency will decide penalty later. Meanwhile, client's lawyer told him to pay $8000 in funeral expenses and $464 per month in compensation. As per client's lawyer, court would have ordered these payments. So at this point client is VOLUNTARILY paying. These payments may help as case goes further.

Client thought that insurance agent has already started workman comp in April 2010! Accident happened in Dec 2010. Lots of unresolved issues as you can imagine.

Anyway, thank you all for help.