Recent Developments

S Corporation Compensation Games.

Mr. Big only gets paid $500/week, but gets a distribution of $1 million/year form his S corporation. Why? Might it have something to do with minimizing payroll taxes? Mr. B, the IRS wasn't born yesterday! Distributions and other payments by an S corporation to an officer must be treated as wages to the extent the amounts are reasonable compensation for services.


Factors considered by the courts include:

  Training and experience • Duties and responsibilities • Time and effort devoted to the business • Dividend history • Payments to non-shareholder employees • Timing and manner of paying bonuses to key people • What comparable businesses pay for similar services • Compensation agreements • The use of a formula to determine compensation. FS-2008-25; IRC Sec. 1362. Corroborate the basis for your salary, and most importantly do what Dr. Phil, CPA says "Get Real"!


Continuous Representation.

A law firm's former client's claims concerning offshore trusts the firm helped the client form to avoiding taxes were not barred by the three-year statute of limitations. The court held that the firm continued to represent the client after the trusts were formed. The continuous representation theory is to protect clients, not help attorneys. De May v. Moore & Bruce LLP, D.D.C., No. 08-845 (ESH), 11/06/08.


Taking an IRS Audit too Hard.

You thought that the 1993 movie Falling Down with the character William "Bill" Foster (played by Michael Douglas) was a movie. But the script sounds like a documentary about Randy Nowak. Randy, the owner of a construction company, took a recent IRS audit in Bill Foster style. Randy hired a hit man to bump off the IRS agent and burn down the local IRS office. Well, who needs a tax attorney! Unlike Bill, however, Randy will have lots of time to contemplate his misdeeds during his long prison term. US v. Nowak, M.D. Fla. No 8:08MJ1362TBM, 12/18/08).

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