1120s question

[spanel]

i just got a new 1120s client that paid both shareholders on a 1099m in 2011. Suggestions on what to do?

Thanks

Chris

[BHoffman]

Hi Chris -

Did they deduct the 1099 amounts on their books, or were the amounts coded to draws?

Did they take reasonable officer salary in addition to the amounts on the 1099s?

[spanel]

they deducted the amounts on thier books... no other payments for compensation were paid.

chris

[ChEAr$]

If you're talking about using a 1099-misc to report pay to stockholders who were also employees, that might be okay.

But if these stockholders were also officers of the corporation and employees, it is wrong.

Remember, we're talking about three different types of individuals here; stockholders, officers and/or employees. The groups may not be mutually exclusive.

If husband and wife each own 50% of the common stock and each are officers of the corporation, each should receive employee compensation for actual work done. The profit after all deductions is then split out on the K-1.

But use of the 1099 misc is just plain wrong.

For 2011 it's not too late to go back and change things to get it right.

[BHoffman]

Is there a profit or a loss on the 1120S before consideration of the amounts paid as shareholder compensation?

Are there any shareholder loans to the Corp?

[DaveO]

Just went through an audit with a S corp owner who did this. The IRS knocked the whole return down to a schedule "C". Once that was settled he got the notice for the employment tax audit looking at all of his "subcontractors". The fun never ends.