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Discussion Forum Index --> Basic Tax Questions --> Salary issues for 100% S/H in a C-Corp
Discussion Forum Index --> Tax Questions --> Salary issues for 100% S/H in a C-Corp
Gpevan06 (talk|edits) said:
| 7 July 2008
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| I have picked up a new client, he is a 100% S/H in a C-Corp a masonry contractor. He has to file a return for his last year in business, 9/07 to 8/08. The problem is he never took a salary for the year, but wrote checks to himself or cash in the amount of $145K. He is about to file bankruptcy for the Corp and personal this month. IRS is after him for prior taxes owed and not filing his 07 personal tax return. He told them that he had no income from the Corp. He had a payroll service file payroll returns for 07 and W-2s, but in 08 he made all his employees subcontractors, but never issued 1099s. My question is how do I treat his $145K and the payments made in 08 with no 1099s?
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Trillium (talk|edits) said:
| 6 July 2009
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| This question was moved from articles, where it was posted earlier today.
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Blrgcpa (talk|edits) said:
| 6 July 2009
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| Issue a late W-2 with the net salarty of $145,000. Gross it up to cover p/r taxes and file the 941 for the 4th q of 08.
Issue the 1099s.
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RoyDaleOne (talk|edits) said:
| 6 July 2009
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| I would not issue W-2 without consulting legal consult about this matter, your client consults his and you consult your.
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Jimi (talk|edits) said:
| 6 July 2009
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| I think grossing up and issuing a late w2 would be a fraudulent conveyence for bankruptcy. You would be creating a new creditor and one that has a high priority.
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KatieJ (talk|edits) said:
| 6 July 2009
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| Sounds like you (or your client) are damned whatever you do. I'd confer with the bankruptcy lawyer (and maybe my own, too, as Roy suggests) before I did anything. The simple approach would be to treat the $145K as a distribution -- dividend to the extent of E&P, ROC to reduce capital account to zero, capital gain for whatever is left over. That's conservative because it's income to him and no deduction for the corporation. Of course it avoids the payroll taxes, but as Jimi suggests, that may be a problem in the bankruptcy because it would create a FICA liability.
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