Surprise! A shareholder can’t deduct a payment made on behalf of an S corporation, according to the Tax Court.
Two individuals, who owned all the stock in an S corporation, personally paid the company’s utility bill and property taxes and deducted the amounts on their Forms 1040.
The payments should have been treated as capital contributions from the owners to the firm and deducted by the company. Here, the corporation didn’t claim a write-off on its Form 1120-S. But that doesn’t matter. The shareholders can’t take corporate expenses on their personal returns.
Vorreyer, TC Memo. 2022-97