Discussion:Reasonable compensation audit
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| Revision as of 22:23, 8 May 2009 TAX.TITAN (Talk | contribs) (I agree with you) ← Previous diff |
Revision as of 23:01, 8 May 2009 Johnhuddleston (Talk | contribs) (Have her show yo) Next diff → |
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| {{ForumReplyPost|UserID=TAX.TITAN|Date=8 May 2009|Text=I agree with you: This auditor is shooting from the hip. }} | {{ForumReplyPost|UserID=TAX.TITAN|Date=8 May 2009|Text=I agree with you: This auditor is shooting from the hip. }} | ||
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| + | {{ForumReplyPost|UserID=Johnhuddleston|Date=8 May 2009|Text=Have her show you any court case where a $44,000 salary (or even a $21,700 salary) was determined to be unreasonably low. I don't think there is one.}} | ||
Revision as of 23:01, 8 May 2009
Discussion Forum Index --> Advanced Tax Questions --> Reasonable compensation audit
Discussion Forum Index --> Tax Questions --> Reasonable compensation audit
| 8 May 2009 | |
| Just thought I would share what is happening with a "payroll tax audit" on a client. The letter notifying the client of the audit says it is on the 2006 941s for a corporation. When the auditor got here, she hardly looked at the 941s, but instead focused on reasonable compensation. Client is an S-corp Mexican restaurant with two shareholders that started in 2000. One shareholder is never present (and I haven't even met) while the other shareholder does all the restaurant managerial duties. His wages (including tips) were $21,700 in 2006, $36,000 in 2007, and $44,000 in 2008. There were $50k of distributions in 2006 and none in 2007 or 2008. However, the S-corp started paying lease payments and improvements on another property in 2007 that will end up as another S-corp restaurant/sports bar this year (the auditor wants to call these distributions, but I believe this will be paid back from the new restaurant's profits).
The auditor states "corrected wages will be $45,000 in 2006, $60,000 in 2007 and 2008" for the manager shareholder. Of course we will be disagreeing. Restaurant managers in our city make around $44,000 according to salary.com and payscale.com. We will even go to each restaurant manager in the city to find out what they make to support our case. The funny thing is that she wants to move the shareholder's distributions to wages. When I commented that this will make them have uneven distributions (since one shareholder doesn't work in the company) and cause problems for the S-corporation, she said that is up to me to fix. | |
| 8 May 2009 | |
| Sounds like a fight. How does she prove that your wages paid is unreasonable? | |
| 8 May 2009 | |
| What was the premise of their argument for their wages to be that high? | |
| 8 May 2009 | |
| I don't know right now. She mentioned something about "maximum rates". I asked her if there were pay scales or something they used to determine the wages and she said there really isn't anything out there. I believe she is just adding distributions to wages to get to a higher number. | |
Johnhuddleston (talk|edits) said: | 8 May 2009 |
| Have her show you any court case where a $44,000 salary (or even a $21,700 salary) was determined to be unreasonably low. I don't think there is one. | |
