Say It Isn’t So! IRS Increasing Surveillance of S-Corp Dividend Distributions ??
Tax is not my bag. But did I see something recently to the effect that the IRS was ramping up to look very hard at distributions from S-corps. Have you seen anything about that?
The issue, of course, is owners taking distributions in lieu of, or to supplement, ordinary compensation.
I consult to very high growth-profile business starts, small and medium businesses. Essentially I become the “CFO” for firms that are just not quite ready to hire a full time CFO. We work *with* CPA’s, EA’s, and Counsel. We don’t do tax and very little financial accounting, but you can imagine that there is some tension between our firm and the CPA’s.
My problem is half of my client base take distributions for at least some of what a reasonable person would class as ordinary compensation. These are not warrants or convertibles, but flat out dividend distributions. Interestingly, all were set up by CPA’s.
What gives? How should I advise these folks? What is the risk to the corporation and to the shareholder-owners?