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04/19/2013 at 09:23AM PDT
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BFile
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02/28/12 8:58am PST
Viewed by asker 02/28/12 9:42am PST

S-Corp officer not paying salary

I have a new client, S-Corp, one officer. He has been in business for 6 years with a CPA doing his taxes for all that time. He has not paid any salary to himself for the 6 years, just all distributions. CPA has never insisted he pay a salary to himself.

I have explained that he needs to pay himself a reasonable salary every year, and he is doing that this year 2012.

I know all the rules about S-corp, but I'm not sure what to do now. Should he do amended returns and amended employment taxes for all the years? I know the IRS will catch up to him eventually.

Any advice I can give him is appreciated.

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Sue928
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Sue928
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02/28/12 10:48am PST
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Are you also doing the year end books for the S-corp besides the 1120S? If so, you may want to consider reclassifying the distributions as payroll in 2011, pay the employment taxes (the penalty for late payment will probably be less than an S-corp audit), submit 941s and 940 for 2011. You have advised the client and taken steps to correct the bookkeeping for 2011. I then would have no problem puting my name on the return.

Let the CPA take responsibility for past years unless client agrees for you to correct everything. Just out of curiosity, did the CPA include the distributions in income somewhere on the 1040 returns for past years?

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RNuse
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02/28/12 10:55am PST

Is it possible that they CPA placed the distribution amount on a sched c.  I have seen this done before and the client is still paying SE. 

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IRMN
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02/28/12 10:56am PST

I agree with Sue about fixing the current year and keep doing things right from now on.  Inform the client of the potential ramifications of the open years and let him make the decision whether or not he wants to fix the open years or just go to church more often and pray that the issue dies a natural death.

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RNuse
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02/28/12 10:59am PST

Distributions a generally not taxable.  Do mean his share of the income from the k-1.

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CTDixie
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02/28/12 10:59am PST

 I didn't know any tax issue died a natural death.....

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IRMN
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02/28/12 11:02am PST

Dixie - depends on a person's definition of natural.  Usually, it is a bloody horrific death, but sometimes they can go quietly.

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CTDixie
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02/28/12 11:17am PST
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 Well then, as for me, my tax death would be very bloody.....NEVER quietly.

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