Constructive dividends from C corp for

[cred65]

Agent wants to disallow principal portion of corp payment for SH auto that was used 90% for business nor any depreciation. This also resulted in a large constructive dividend to SH. The agent also informed us that we need an auto reimbursement plan between Corp and SH.

Any advice.

TIA

[jainen]

>>disallow principal portion of corp payment... any depreciation.... large constructive dividend.... we need an auto reimbursement plan<<

My advice is to set up an auto reimbursement plan. In the meantime, amend the shareholder's return to report the constructive dividend, and arrange payment for the extra corporate tax, penalty and interest from the disallowed deductions.

And keep your head down if you prepared the tax return, because it took a position without any reasonable basis or substantial authority. You might be able to salvage something by treating the payments as constructive wages instead, but generally the sooner you get this audit closed the better off you will be. Yeah, yeah, I know. "It was the client's decision."

[ILLMAS]

I do work for a CPA, and over the summer one of his client was being audited, the auditor disallowed about 25% (expenses, auto loan, depreciation) for personal use for each shareholder, the 25% became a constructive dividend, shareholders were happy because the CPA has told them to repay part of personal use of the auto or to report it on their W-2 as additonal compensation. Business owners never followed through until they were audited, the auditor made the changes on both the corporate return the the shareholders tax returns, so I would ask him to make the changes himself, saves you time if you and your client agree to change. The constructive dividend on the shareholder return was tax at 15% vs 35% if they would added as additional compensation. There was some interest, he gave them a break on the penalty.

[cred65]

I do work for a CPA, and over the summer one of his client was being audited, the auditor disallowed about 25% (expenses, auto loan, depreciation) for personal use for each shareholder, the 25% became a constructive dividend, shareholders were happy because the CPA has told them to repay part of personal use of the auto or to report it on their W-2 as additonal compensation. Business owners never followed through until they were audited, the auditor made the changes on both the corporate return the the shareholders tax returns, so I would ask him to make the changes himself, saves you time if you and your client agree to change. The constructive dividend on the shareholder return was tax at 15% vs 35% if they would added as additional compensation. There was some interest, he gave them a break on the penalty.

Is it the agents authority to abate the penalty. In this case it is app. $6K.

[ILLMAS]

Is it the agents authority to abate the penalty. In this case it is app. $6K.

He did in our case, both for the 3 shareholders and the corporation, client only paid for the additional tax + interest. So it wouldn't hurt to ask to abate the penalty, saving your client 6K would be nice.

[Arche1]

Agent wants to disallow principal portion of corp payment for SH auto that was used 90% for business nor any depreciation. This also resulted in a large constructive dividend to SH. The agent also informed us that we need an auto reimbursement plan between Corp and SH.

Any advice.

TIA

As they say in the stock market, bulls and bears make it, pigs get slaughtered