From TaxAlmanac, A Free Online Resource for Tax Professionals
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> S Corp passive owner with spouse as independent contractor?
Estock (talk|edits) said:
| 23 August 2006
|
| Hi there! I have a client who is a 100% shareholder of S Corp. Her husband is an independent contractor for various companies, and also does work for my client's company. Is he considered an independent contractor for her company? It just seems to me that there might be some problems since they could be considered "one shareholder" and that he might need to be paying payroll taxes...? Whatcha think?
|
Dennis (talk|edits) said:
| 23 August 2006
|
| Out of idle curiousity, Elizabeth, why pay him at all?
|
Estock (talk|edits) said:
| 23 August 2006
|
| Hmmm, good question! I will ask them, but I see your point. Maybe they want to contribute to his FICA - dunno. If he didn't take the money as income, do you think this would be questionable - or it just doesn't matter since he's not a shareholder?
|
Michaelstar (talk|edits) said:
| 23 August 2006
|
| If he has ownership in the stock in anyway (community property state) then the answer is no. As a s/h he needs to be paid via wages and a W-2.
|
IntlTax (talk|edits) said:
| 23 August 2006
|
| I disagree that payments for services to stockholders must be treated as wages. The analysis should be run through the normal employee vs. independent contractor rules to see if the payments should be classified as wages to an employee. Payments for services to officers typically must be treated as wages, but if he is not an officer (or not acting in that capacity) then the payments may not be wages.
|
Riley2 (talk|edits) said:
| 23 August 2006
|
| IntlTax is absolutely correct about this. A shareholder can be an I/C. For example, a shareholder who happens to be a member of the board of directors would be an I/C with respect to his directorship services.
|
Michaelstar (talk|edits) said:
| 23 August 2006
|
| Riley2 - I agree with your example of the BOD. Unless this guy is a BOD then I would then consider the "work" he would be providing to the S-Corp to most likely be trade or business. That I would classify as wages if he was considered a shareholder. Now he may be an attorney or a CPA who has his own firm and providing that kind of service but otherwise, I would still lean towards a W-2 based on IntnTax's reasoning but decide on the side of being conservative.
|
Riley2 (talk|edits) said:
| 23 August 2006
|
| It really is a question of whether the service provider is under the "control" of the corporation. A CPA can have his own practice, yet be under the control of his employer for other purposes.
|
Estock (talk|edits) said:
| 23 August 2006
|
| The husband is not under the control of the corporation. The company out sources work to him. My only concern is if he would be treated as a shareholder since he is married to the corporation's sole shareholder. My guess is not.
|
Riley2 (talk|edits) said:
| 23 August 2006
|
| Yes, there are certain rules of attribution that will cause the husband to be treated as a shareholder (e.g. fringe benefits). However the fact that he is a shareholder would not necessarily mean that he is under the "control" of the corporation. If he is not under the control of the corporation, there can be no employer-employee relationship for tax purposes.
|
To join in on this discussion, you must first
log in.
