Recent Developments

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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”!

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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.

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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).