Bonus? Loan?

[Bird Legs]

Facts: Client A, works for a corporation. The owner of the corporation, at the end of 2005, told bookkeeper to write a check, bonus, for $25,000. to client A, and to mark it as a loan.
Said his accountant in another city told him to do it this way. The accountant also said that this $25000. would be recorded on the books as a loan receivable.
I asked client A if he signed any paper work requiring him to pay back this $25,000. His answer was no.
Client also said that the owner of the corp. told him that if he reported this as income then
the company would reimburse him for the taxes on the bonus.

Client also said the accountant in the other city told him not to deposit the check in
his bank account or it would get reported to the IRS. Accountant told him to deposit
no more than $9900.
Client took the check to his bank and deposited the 9900. and got money orders for
the rest of the check and paid bills with them. House & car paymens etc.

Am going to report this $25,000. on a substitute W-2 for clients 2005 form 1040.
Do you feel that this is the proper thing to do?
Have not had one like this before.

[taxmandan]

Loan or ?

I'm not sure a substitute W-2 is correct, how would you reconcile with the original W-2 issued to employee? The owner of the corporation needs to correct the employees 2005 W-2 to reflect this additional income in box 1, 3, 5 with the attendant withholding for FICA, etc. The employer needs a new "accountant", his attempt to avoid the $10k reporting on cash transactions shows real ignorance of that reporting requirement AND a mind set to evade lawful reporting of business activity.

[geekgirldany]

the employer should do a corrected W-2. Your client needs to ask his employer to do it. But if they won't then the only thing I see is doing a substitute W-2. If I was the employee I would get it in writing about the employer paying the taxes. Employer's accoutant is not advising his client correctly.