The IRS is imposing Revenue Ruling 74-44 very aggressively. Revenue Ruling 74-44 basically states that an S Corporation owner must take reasonable compensation subject to payroll taxes and not dividends. There was a recent case of a CPA who took $24,000 as income and $200,000 as dividends. The IRS disagreed and the district court ruled with the IRS.
I have been advising my clients on this issue. I strongly encourage everyone who owns an S Corp to review their payroll versus distributions.
Also the IRS is planning on new regulations for late S Corp elections; guidance should be out later this year.
(847) 690-9454
ljensen@leifjensenassoc.com
