A wrote:

- quote -

In my experience it is often quite difficult to get a client
who is the sole owner of his business to think of himself
and his business as two separate entities. It sounds as
though this client is running both his personal life and his
business through his personal checking account. Even if you
decide you can figure out from his records what does and
does not go into the corporation, you'll serve him well if
you can persuade him to set up a checking account for the
corp and keep it separate from his personal life.

You might suggest he talk to a lawyer about the risks
associated with his methodology (might be more persuasive
than the tax/bookkeeping argument). Generally people set up
S corporations or LLCs rather than run their businesses as
sole proprietorships because they hope to get some
protection for their personal assets against the claims of
creditors of the business. The structure you describe is an
open door for an assertion that the corporation is merely
the alter ego of the owner, and that all of the owner's
assets are fair game. That might put the fear of
you-know-what into him.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"A" wrote:

- quote -

C-Corps due the peculiar hazards there, but the net tax
deficiency and administrative complications can make
treating the entity as a sham, to which t/p is unlikely to
agree, an exercise not worth the time. The worst scenario is
several S/H, wherein a partnership must be created and
everything reworked, with different basis rules. Another
example is the need to refund all SS and FUTA taxes paid
w/r/t shareholder-employees, in order to equitably assess SE
tax on 1040.

Etc., etc., and it can all approach the bizarre, if the t/p
demands as a condition of concession to enter into closing
agreements with respect to certain matters on
1120S/941/940/1040, filed or to be soon filed. Why the
agreement on the 1120S? Because all t/p need to do here is
fix the bad behavior on the bank account, and presto, no
more sham -- but want that in writing. Unless, uniquely,
there's substantial net tax involved, IRS can apply the
Principle of the Ten Foot Pole up front.

Fred F.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

I'll confess I am a little anal when it comes to doing
things correctly. I had a gentleman call me today and here
is his situation. He has an S-corp that only has a corporate
savings account (no check writing privileges) where deposits
are made. He claims he has always just transferred funds
from the corporate savings account into his personal
checking account, and then wrote checks from his personal
account for the corporation's expenses. He says his former
accountant never had a problem with this, and he never told
his account about every little transfer. I tried to explain
that even though it is an S-corp for tax purposes it must
still operate as a corporation, not a sole proprietor making
"draws". Is this common for S-corp owners? I have mostly
worked with larger C-corps and have not had much experience
with small S-corps.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->