Odd S Corp Situation

[erchess]

Two 50% owners of S Corp both work in the business but only one gets anything out of it to speak of. The no paid owner is my client and this is the way she wants it. If the total amount paid out by the S Corp is ok and if the amount of distribution that is wages is ok and the only problem is it's mostly going to one owner is that a problem for them or for me as the signing preparer? (And why do I get all these strange situations?)

[Uncle Sam]

Odd S Corp Situation

The requirement for S corps is that the taxation of profits and the distributions must be in the ratio of
their respective stock ownership.
Payment of salaries does not have to be in proportion to stock ownership. It's all relative.

I have a husband/wife 50%/50% ownership S Corp.
Husband is the main service person - who does the calls to customers, has the required license, etc.
The wife takes care of the accounting - bill payments, etc in addition to tending to the business customers
in the store in the absence of the husband when he's out on calls. His salary is a lot larger than hers.
Never had a problem

[Snaggletooth]

Must be 50-50

If the stock is split 50-50, and the corporate instrument insists on 50-50 splitting, then it must be respected
and filed as such.

If one spouse is getting the money, even if it is complicit with the other shareholder, this is going to have to be
salary, guaranteed payments (if a partnership), to the extent that equalizes the profit. If that is difficult, "loans"
to shareholders might be used but only to a minimal degree, and there should be a document, and the money
should be paid back.

The salary or expense can be deducted from the earnings of the S corp, but then the K-1 must be 50-50 to
each regardless of who got the money. You should educate these people as to what can and can't be done.

Where do you find these people? I dunno. I seem to find some lulus myself.

[erchess]

There's no prog with the k1a

They ARE split evenly. It;s just that the single biggest expenditures of the firm are wages and insurance paid to only one owner when both appear to have worked evenly in providing services to clients and the "other" owner in addition maintained the website kept the books paid the bills, and took care of marketing and hiring of professionals used by the firm. The two people by the way are friends but no more and the lucky owner may be about to get married to someone else while the other one already is married to someone else.

[Snaggletooth]

Strange, but no cigar

Looks like you know your 50-50 stuff alright, but I don't think there's a thing you can do about the seeming imbalance in benefit.

You're probably talking to only one of them and hear only one side of the story. And even if they are right, the compuntion upon any party to make it right definitely falls on a party other than yourself.

[erchess]

They are both happy

so I guess alll is well. TY all.

[Burke]

The only problem I could foresee is the unreasonable compensation issue. That would only come up in an audit. And that would depend on the hours each of them work, the type of work performed and expertise required, and their respective tax situations outside the business, since they are not married filing a joint return. But it is an issue, since apparently there is one who is not being paid at all but working equal hours or who has equal responsibilities. So you have to look at it as the IRS would --- is pay being manipulated so that it goes to the one who is in a lower tax bracket.....just sayin'..... If you have that issue covered (or explained) that's all you can do. Some salary for the unpaid owner would be better than nothing. And why does "she want it that way?" If she is getting any distributions, I think they have a problem.