Recent Developments

o Reasonable Compensation:

If your business remains organized as a C corporation paying salaries is critical to avoiding the double corporate tax (corporation tax, plus tax you pay on dividends distributed). If you hire family in your business and want to shift economic value to them, paying them salaries can be an excellent means of accomplishing this goal. It can save gift tax (on transferring value) and income tax (if the family member is in a lower income tax bracket). However, for these payments to withstand IRS challenge they must be reasonable. The appropriateness of the salary amounts will be based on the payee's actual contributions to the operation and management of the business, earnings and profits of the business, roles and responsibilities, etc. In Wechsler Co. Inc., v. Commr., TC Memo 2006-173 the court disallowed any payments to the taxpayer's brother since no proof was presented that he actually provided services, and payments to the taxpayer's wife were reduced by ½ since they were unreasonable in light of the services provided. Tip: Have your CPA provide a compensation study to corroborate the reasonableness of the salaries used.


o New York LLCs - "Publish or Perish":

If you have a New York limited liability company (LLC) you have to publish specified information in at least two local newspapers, once per week for six weeks. Thereafter you have to file a certification of the publication with the NY Department of State. There had been much controversy over this requirement and many people opted not to publish. The controversy is resolved. If you formed an LLC prior to 6/1/06 and published under the old rules, you are deemed in compliance with the new law. If not, you must comply with the new law by 6/1/07 or your LLC will be suspended. If your LLC was formed prior to 1/1/99 you don't have to publish (but may wish to do so). If you formed an LLC after 6/1/06 you must publish within 120 days.

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