With the S corporation, the loan that fails as a loan can result in taxable wages to you.\u00a0<\/span><\/p>\n With the C corporation, the loan that fails as a loan can result in taxable dividends to the shareholder.<\/span><\/p>\n <\/p>\n Nariman Teymourian got a real shock when, at the end of his IRS audit, the IRS claimed that he owed over $600,000 in taxes and penalties, primarily because he had received advances from the corporation in which he had majority control.\u00a0<\/span><\/p>\n If you own a C corporation, pay attention to your advance account. When the IRS looks at your advance account, it decides between two options:<\/span><\/p>\n \u00a0<\/span>Obviously, there is a huge difference between a loan and a taxable dividend.<\/span><\/p>\n Mr. Teymourian was building a home. His corporation made some big advances during this building effort. The paperwork between Mr. Teymourian and the corporation was not close to perfect and that triggered the problems with the IRS.<\/span><\/p>\n Mr. Teymourian won his case, but, he also had the displeasure of the IRS\u2019s company in court.\u00a0<\/span><\/p>\n Here are seven magic questions to which you want to answer \u201cyes\u201d to ensure that your advances are treated as loans. We structured these as after-the-fact questions, because you would be giving your answers to the IRS after the fact.<\/span><\/p>\n![\"Salary](\"https:\/\/i0.wp.com\/byronrileycpa.com\/app\/uploads\/Salary-or-loan-or-distribution.jpg?resize=402%2C264&ssl=1\")
Good News, Bad News<\/b><\/h3>\n
Good news.<\/b> Mr. Teymourian won his case in court and paid zero additional taxes.\u00a0<\/span><\/h4>\n
Bad news.<\/b> Mr. Teymourian had to go to court.\u00a0<\/span><\/h4>\n
\n
Here\u2019s the Teymourian Story<\/b><\/h3>\n
Key point –<\/b>\u00a0Operating as a C or an S corporation requires that you be pretty good at paperwork.\u00a0<\/span><\/h4>\n
To Do List for You<\/b><\/h3>\n