Thursday, April 27, 2017

Caution as to Compensation Paid by Professional Corporations

By: Ralph Levy
Of Counsel, Nashville


Two recent Tax Court cases raise caution flags as to the deductibility of shareholder
compensation by medical, dental and other professional practice groups organized as professional corporations (PCs) or professional associations (PAs) that are taxed as “C” corporations for federal tax purposes.  In each case, on audit, the IRS sought to disallow deductions for a portion of the compensation paid to the corporation’s shareholders and asserted that the payments should be treated by the payor “C” corporation as nondeductible dividends. 

In Brinks Gilson & Lione P.C. v Comm’r, T.C. Memo 2016-20, the Tax Court upheld accuracy-related penalties against an incorporated law firm taxed as a “C” corporation that had deducted all of its yearend bonuses paid to its attorney shareholders. As part of resolution of an audit prior to the initiation of an audit prior to the initiation of the Tax Court case, the law firm had agreed that a portion of the bonuses were not deductible. However, the audit resolution did not address whether accuracy-related penalties should be assessed against the law firm.
 
 
To read more of this interesting article that  is published in April's Healthcare Michigan April 26, 2017 - page 6, please click here, then scroll down to articles, then click on the pdf readable version, Caution as to Compensation Paid by Professional Corporations,  published in Healthcare Michigan, April 26, 2017.