John Tuzynski, IRS Chief of Employment Tax, SB/SE Speciality Programs, has announced that the IRS is expanding efforts to close the $15 billion dollar tax gap in the employment tax area. Specifically, Tuzynski stated that S corporation shareholder wages and the issue of reasonable compensation for services rendered would be a target area.
For a good primer on the issue of reasonable compensation see the Journal of Accountancy’s, S Corporation Profits or Payday? by James A. Fellows and John F. Jewell.
Tuzynski stated that tax return preparers would be subject to preparer penalties if they prepared S corporation returns that reflected a “less-than-market’ salary for services rendered by small business owners.
For at least the last five years the IRS has been threatening to go after S corporations that understate owners’ compensation. I have been involved in dozens of S corporation audits in the last ten years and have not had a single IRS examiner raise this issue.
Is the IRS just crying wolf or could this be the time they actually do pursue this issue?
3 responses so far ↓
1 Mike W // Feb 4, 2009 at 4:49 pm
They are not crying wolf……Their training is going on right now and focusing on Officer Comp.
2 S Corporation Wages and Distributions: Basic Tax Planning // May 5, 2009 at 8:35 am
[...] the last decade the IRS has
3 george // Oct 28, 2009 at 11:02 pm
My employer made me a 10% shareholder in an S-CORP in a liquor store buisness with 9 figure sales yearly. I have not received any extra money for this so I know he did it for his own benefit by committing tax fraud. I have asked CPA’s and attorneys but I can’t get any answers. They all say they don’t know. I also know I was removed as a shareholder after he did get audited a few years ago but never told me about it. I never invested any money into the buisness but I do have a tax return showing I was a shareholder. Does anyone have any answers?
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