Not paying salary to its owner causes headaches for an S corporation.
A lawyer who was the president of her own S firm. The company did not pay her a salary but did provide her with funds, which the firm deducted as officer’s compensation on its Form 1120-S. She didn’t report the compensation as income on her 1040, and the firm failed to pay any employment taxes on its remittances to her.
The firm owes employment tax, and she owes income tax, the Tax Court says. The owner performed services and is an employee. This almost seems to be a fraud issue.
Ward, TC Memo. 2021-32