8903 "wages" for 1120S

[SunTaxMan]

Does wages for K-1 and taxpayer's 8903 include wages paid to shareholder or just employees OTHER than the shareholder?

I have read a number of sources and haven't found any guidance to INclude or EXclude shareholder's wages for 8903 purposes.

By the way, these are 2005 returns.

I COULD assume that, in the absence of clarification to NOT include shareholder's wages, that INcluding them would be appropriate, but we all know what it means to *** u me.......

Thanks

[Bees Knees]

I did a search in Notice 2005-14 http://www.irs.gov/irb/2005-07_IRB/ar08.html and TD 9293 http://www.irs.gov/irb/2006-48_IRB/ar10.html on W-2 wages and S Corporations. I can’t find any restriction that says W-2 wages allocated to an S Corporation shareholder for purposes of the W-2 limitation does not include his or her own W-2 wages from the S Corporation.

I could be wrong, but I do not believe the issue is discussed in any of the regulations to date. There is all kinds of information regarding how to allocate W-2 wages among the shareholders of an S corporation, and how the various amounts are passed through the S corporation to the individual shareholders, but nothing that I can see that limits W-2 wages to the employees who do not own any stock in the corporation.

On the other hand, I seem to recall hearing at a tax seminar that an S corporation shareholder cannot include his or her own wages. It seems to make sense. However, it would be good to have a citation that specifically addresses the issue before making such a statement.

[ChEAr$]

Except that some shareholders

I did a search in Notice 2005-14 http://www.irs.gov/irb/2005-07_IRB/ar08.html and TD 9293 http://www.irs.gov/irb/2006-48_IRB/ar10.html on W-2 wages and S Corporations. I can’t find any restriction that says W-2 wages allocated to an S Corporation shareholder for purposes of the W-2 limitation does not include his or her own W-2 wages from the S Corporation.

I could be wrong, but I do not believe the issue is discussed in any of the regulations to date. There is all kinds of information regarding how to allocate W-2 wages among the shareholders of an S corporation, and how the various amounts are passed through the S corporation to the individual shareholders, but nothing that I can see that limits W-2 wages to the employees who do not own any stock in the corporation.

On the other hand, I seem to recall hearing at a tax seminar that an S corporation shareholder cannot include his or her own wages. It seems to make sense. However, it would be good to have a citation that specifically addresses the issue before making such a statement.

even with wages might not be engaged in domestic production activities.

With my only S corporation for which it applies, the president, 100% shareholder is
also THE manager, foreman, superentendant (sp?) on the jobs, so his wages clearly
qualify. If he had an office employee, hers I don't think would. Nor would another
shareholder whose salary was only enough to cover medical insurance premiums
since he might not be involved in daily operations.

[SunTaxMan]

8903 Wages, responses

Thanks for the responses. The lack of response has puzzled me. I have wondered if many in these groups are as "unsure" as I am - assumedly because of the lack of IRS clarification. Perhaps.......

In the absence of citations, common sense would seem to indicate that "wages" are "wages," at least from the perspective of "producing" products that qualify for the credit. WHO the wages are paid to would not seem to be relevant to the end product produced. The "wages" involved are not specified to be wages directly applicable to the
QPA, just "wages" paid in the course of operating the business.

Even as I say this, I realize that "common sense" is not a reliable yardstick to measure IRS guidelines.

But, anyway, I think my question is answered, from a "reverse" perspective, i.e., in the absence of any specific restriction on the INclusion of the shareholder's(s') wages, there is no reason to EXclude them.

[Lion]

Wages

I was taking an online course from CCH, I think, re S-Corporation dissolutions and skimmed through the S-Corp material that was NOT re dissolutions. One of the points the text made was that pass-through items, such as the Domestic Production, had to be in proportion to ownership of stock. They said that two 50/50 stockholders with no other employees would split the items related to the credit 50/50, even though one stockholder might earn a salary of $100,000 from the S-Corp. and the other earn only $25,000. It was making the point that the $100,000 stockholder can't base his credit on half of his own W-2 wages but only on half the total wages paid to the two stockholders, in this case. That seems to say that your stockholders can include their own W-2 wages with the other items relative to calculating that credit.