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Tag Archive for S Corp

Webinar 11:00AM EST Today: Reasonable Compensation For Shareholder Employees Of S Corps (2 CPE Credits)

Reasonable Compensation- S Corps

Are you concerned of guessing at Reasonable Compensation? Are you concerned your clients may be taking too little or too much compensation leaving them vulnerable to an IRS Challenge?

The IRS has specific guidelines on the compensation of S Corp & C Corp owners. Do you want to ensure you are advising your clients properly? Our software helps tax advisors increase the value of their practice by efficiently determining the compensation of an S Corp or C Corp owner in minutes, providing a high dollar value add service to your practice, while protecting your clients from an IRS challenge.


Paul Hamann is an expert on determining Reasonable Compensation for closely-held business owners. He has educated more than 30,000 tax advisors and valuators on the topic of Reasonable Compensation.

Event Description

Between 2010 and 2013 a flurry of court cases and IRS enforcement brought the issue of ‘What is Reasonable Compensation for a Shareholder-employee of an S Corp’ out of the shadows and placed it forefront as a priority issue for CPA’s, EA’s, Tax and Financial advisors to cover with their clients. In 2017 congress passed the TCJA again placing Reasonable Compensation front and center, making the stakes even higher if challenged by the IRS.

Learning Objectives

Understand The Basic Advantages Of Distributions V. Salary/Wages

-Identify IRS guidelines for determining Reasonable Compensation and assess the consequences of an IRS re-characterization of distributions
-Review Reasonable Compensation in the courts and advanced scenarios
-Recognize when Reasonable Compensation applies to your client and identify options for determining Reasonable Compensation
-Review why Reasonable Compensation has become a priority for the SB/SE division of the IRS and review Tips from the pros and IRS Red Flags

Who Should Attend
CPA & EA practitioners who advise Shareholder-Employees of S Corps on the issue of Reasonable Compensation who are interested in learning about current IRS guidelines, and solutions for advising their clients on the issue of of Reasonable Compensation.




Reasonable Compensation And Single Shareholder S Corporation

Reasonable Compensation And Single Shareholder S Corporation

“If there is only one shareholder and no other employees, should all distributions be taken out as Reasonable Compensation?”

This is a common question we receive at RCReports and like with most of the questions we receive, the answer is: “Maybe.”

If the business is so unique or the services of the shareholder are so unique, that no one could be hired to replace the owner and there are no other assets in the corporation, then everything taken out of the business should be treated as wages (Reasonable Compensation) and nothing should be considered a distribution.

If the corporation has tangible assets, such as equipment or inventory, the owner deserves a return on that investment. Likewise, if the business has employees or uses contractors, the owner deserves a return on that investment as well.

If the corporation has intangible assets, such as goodwill, a license to operate or a favorable lease, the shareholder should be getting a return on these assets. These assets may or may not have a tax basis. An example of this would be internally developed goodwill.
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Small Business Owner Ego and Reasonable Compensation For S-Corps

Paul Hamann - S Corp and Reasonable Compensation

There are times when every small business owner’s ego can be an asset, although when it comes to Reasonable Compensation and S Corps, having a big ego could cost your client thousands of additional dollars in payroll taxes and QBI deductions.

Let’s look at an example: Meet Joan and her over-inflated alter ego Joanna.

When Joanna completes a Reasonable Compensation survey, she does so with an immensely inflated ego. She doesn’t bother to read the job descriptions and selects tasks based solely on title; there is no task Joanna –doesn’t consider herself awesome at completing; so she rates her skill level as high for each selected task on the survey.

When Joan fills out her Reasonable Compensation survey, she takes her accountant’s advice and sets her ego aside. She reads through the job descriptions and chooses tasks that best fit what she really does for her business. She is honest with herself, and acknowledges she can’t possibly be impeccable at every task and so rates her skill levels appropriately.
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Planning S Corp Distributions To Keep The IRS Off Your Back

Paul Hamann On S Corp reasonable compensation

“I’ll just take distributions, then pay myself reasonable compensation at the end of the year.” Quack, quack.

“Holding a meeting is a hassle. I’ll just write a check for my distribution when I do payroll.” Waddle, waddle.

Reasonable compensation is payment for the value of work performed by an S Corp shareholder/owner. Distributions are whatever the Board of Directors deems appropriate (votes on). These are two different events.

If you or your clients are tempted to put off paying reasonable compensation to the end of the year, or skip an actual meeting to vote on distributions, beware. The IRS believes that if it looks like a duck, walks like a duck and quacks like a duck – it is a duck. And some agents will assess payroll tax penalties and interest for late filing and late payment of the payroll taxes when compensation is not paid throughout the year. There is no reason to take this risk. Here’s what to do instead.
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Did The IRS Really Lose? Lessons From The Davis Case

Paul Hamann -S Corp Compensation

The IRS usually wins when it challenges an S Corp.’s Reasonable Compensation in court. Over the years there have been in the neighborhood of 25 to 30 such cases. The IRS has come out on top in all except one: The Davis Case. What made Davis different? What valuable takeaways are there for you and your clients?

The case focused on two concepts that every S Corp. and business advisor should understand:

Officer in name only
Substantial services

Background: Mile High Calcium was owned by Carol L. Davis and her husband Henry Adams. This case revolved around transfers in and out of Mile High Calcium from 1987 to 1989. The IRS re-characterized all transfers for the timeframe in question to Reasonable Compensation, resulting in assessed taxes, interest and penalties of $39,220. Carol L. Davis successfully sued the IRS for a partial refund based on the following two-pronged defense focusing on each of the two owners:
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Best Business Entity Structure After Tax Reform – S-Corp And C-Corp

William Rogers

There’s no easy answer to this question, though the entity choice considerations have undergone some changes due to the new tax law. For tax years beginning in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) created a flat 21% federal income tax rate for C corporations. Under prior law, C corporations were taxed at rates as high as 35%. The TCJA also reduced individual income tax rates, which apply to sole proprietorships and pass-through entities, including partnerships, S corporations, and, typically, limited liability companies (LLCs). The top rate, however, dropped only slightly, from 39.6% to 37%.

On the surface, that may make choosing C corporation structure seem like a no-brainer. But there are many other considerations involved.

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Is Your Business Still The Right Entity Under The New Tax Rule? (Part 2)

Blake Christian - Choose Business Entity Part 2

More tips about determining the right corporate, partnership or other structure that’s best for your business—and where you are in life.

Key Takeaways:
• The legal structure of your business operations can have a significant impact on your annual income tax and estate planning.
• When you and/or your heirs expect to be at or near the maximum income tax rates, you will generally want to leave appreciated and appreciating assets in the taxable estate, rather than transfer them prior to death.
• In general, assets with the potential to appreciate in value should not be placed into an S or C Corporation.

As many of you know, The Tax Act of 2017 created a host of changes and considerations for successful business owners in their families. There are six widely used business operating structure. In Part 1 {LINK} of this article we discussed Sole Proprietorships (Schedule C), Limited Liability Companies (LLC) and Limited Partnerships. Here will take a closer look at the other three
entities: General Partnerships, Subchapter S Corporations and Subchapter C Corporations.

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After Tax Reform, Which Is Right For You: S Corp or C Corp?

Charles Woodson, S- Corp Or C-Corp

The Tax Cuts and Jobs Act has left many of today’s businesses with big questions. Incorporation remains a hot topic, but this law is shaking things up. It’s quick to assume your company should be one or the other, but without careful consideration of the facts, your organization may end up facing financial loss, hefty tax penalties or missed tax savings.

The goal of this type of incorporation is to minimize tax burdens, but the wrong decision can be costly. In a C Corp, the company pays corporate taxes to the Internal Revenue Service. But, in an S Corp, there’s no entity tax. Rather, taxes are paid through an individual return.

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Vice President Tax – Real Estate, Partnerships, Acquisitions (Southern California)

Tax Job, Vice President Tax Job, Los Angeles, CA

TaxConnections Executive Search Services Division has recently been retained to conduct a search for a Vice President Tax with experience in real estate, partnerships, mergers and acquisitions. 

We would genuinely appreciate your taking the time to review the  Vice President Tax opportunity and refer this to anyone you know who may be interested in learning more.

Vice President Tax

Responsibilities include global tax strategy, tax planning and compliance; review of all domestic and international corporate, partnership and other income tax returns; and implementing and managing company’s activities (partially insourced and partially outsourced).

The Vice President Tax will report directly to the CFO in identifying and developing effective tax strategies and planning techniques to minimize overall tax burden of consolidated group of companies and minimize overall costs associated with the tax structure. The Vice President of Tax will lead acquisition structuring and due diligence including tax integration efforts.

The role requires research and analysis of tax issues; working with external advisors on domestic and foreign authoritative tax laws, corporate strategies, decisions, regulations and rulings; and advising senior management regarding the impact and tax liabilities. The Vice President Tax will oversee all tax-related payments; review and preparation of income tax projections for cash flow modeling; liaise with domestic and foreign business units, and external service providers on tax matters, and manage the coordination of audits and inquiries by various taxation authorities.

Reply to Kat Jennings to learn more about VP Tax opportunity.



A Brief Overview On How Tax Reform Affects Choice Of Entity

Jim Marshall, How Tax Reform Affects Business Entity

The Tax Cuts and Jobs Act (TCJA), signed by President Trump in Dec. 2017, has significant implications for how businesses will assess the choice of entity. Prior to reform, partnerships were a very common choice of entity, but with the new provisions in TCJA, the C corporation has become an appealing option once again (but with some caveats).

The assessment by the National Law Reviewprovides details on these signficant developments in choice of entity. In general it makes a helpful point: the entity choice will continue to involve a number of considerations, such as the makeup of the investor base, capitalization structure, borrowing requirements, likelihood of distributing earnings, state tax environment, compensation and benefit considerations, participation of owners in the business, presence of foreign operations, and sale or exit strategies.

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Tax Professionals – Question Of The Week For You!

TaxConnections, Tax Question
Am I Better To Put Rental Real Estate In A Sub-S Corporation, An LLC Or A Partnership?


Every Friday, TaxConnections addresses a question submitted to our Ask Tax Questions platform. We ask our members to offer their thoughts on the question of the week. We realize you may need more information which you can request in the comments section below or on the TaxConnections website directly with our visitor.

Please comment below or login to TaxConnections to answer the Question Of The Week. If you are not a member of TaxConnections sign up here.


Tax Professionals – Question Of The Week For You!

Tax Advisor’s – What Are Your Thoughts On This Question Of The Week?

My client has an 1120-F entity and wishes to convert it to a C-Corp or S-Corp. Is there a way to do this without any tax implications? He is a US citizen and the corp has two buildings that generate rental income.

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