Recent Developments

o Reasonable
Compensation:

If your business
remains organized as a C corporation paying salaries is critical to avoiding
the double corporate tax (corporation tax, plus tax you pay on dividends
distributed). If you hire family in your business and want to shift economic
value to them, paying them salaries can be an excellent means of accomplishing
this goal. It can save gift tax (on transferring value) and income tax (if the
family member is in a lower income tax bracket). However, for these payments to
withstand IRS challenge they must be reasonable. The appropriateness of the
salary amounts will be based on the payee’s actual contributions to the
operation and management of the business, earnings and profits of the business,
roles and responsibilities, etc. In Wechsler Co. Inc., v. Commr., TC Memo
2006-173 the court disallowed any payments to the taxpayer’s brother since no
proof was presented that he actually provided services, and payments to the
taxpayer’s wife were reduced by ½ since they were unreasonable in light of the
services provided. Tip: Have your CPA provide a compensation study to
corroborate the reasonableness of the salaries used.

o New York
LLCs – “Publish or Perish”:

If you have a New
York limited liability company (LLC) you have to publish specified information
in at least two local newspapers, once per week for six weeks. Thereafter you
have to file a certification of the publication with the NY Department of
State. There had been much controversy over this requirement and many people
opted not to publish. The controversy is resolved. If you formed an LLC prior
to 6/1/06 and published under the old rules, you are deemed in compliance with
the new law. If not, you must comply with the new law by 6/1/07 or your LLC
will be suspended. If your LLC was formed prior to 1/1/99 you don’t have to
publish (but may wish to do so). If you formed an LLC after 6/1/06 you must
publish within 120 days. http://public.leginfo.state.ny.us/menugetf.cgi.