Sub Chapter S Corps

[RLymanC]

Taken from and artical in asset proction web site>

Rep. Sue Kelly, R-N.Y. says that is because small businesses are confused about tax laws. The IRS disagrees and says that they just are not reporting all of their income. So, the IRS is launching a $100 million research project to audit more small businesses. They are choosing 5,000 sub chapter S corporations as part of the project. Since sub chapter S corporations are used primarily by small business people the audit will be targeting the mom-and-pop businesses. The IRS funding for audits increase 50% for the 2006-2007 audit years, so be prepared.

[Bees Knees]

The 5,000 audit thing I think is old. The seminar I just attended said most of those have already been completed, and 90% of the audits resulted in additional taxes owed. The two issues IRS has been winning on are reasonable compensation, and basis in losses.

For those who think you can just do a token wage and treat the rest as a distribution, not subject to FICA, you are mistaken. Sure there are no court cases on that - all court cases to date deal with NO wages and all distributions. Nobody has tested token wages and the rest distributions in court yet. That is because none of the audits decided to argue that issue in court. The IRS is winning on that issue because taxpayers are compromising with IRS at the audit level.

Who wants to be the first to argue it in court?

[DaveO]

TIGTA Report

On May 25, 2005 the TIGTA report to the Senate Finance Committee reported that if "S" Corps had filed as sole props in 2000, an additional $5.7 Billion would have been paid in employment taxes.

The report also showed over 36,000 S corps with operating profits in excess of $100,000 paid no salaries to the shareholders.

These numbers are simply too large for congress to leave alone.

We review the reasonable compensation issue with our "S" corp owners on an annual basis and adjust as their income moves up or down.