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Old 09-28-2015, 05:27 PM
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C-Corp

My dad passed away last year and he was 100% owner of a C-Corp. He was a US Citizen. Unfortunately he did not have a will so my family in going through probate to figure out who will own the shares of the Company. My question is that the C-Corp has Accumulated Earnings and whether the court decides me or my mom as the owner of the C-Corp, does the C-Corp have to distribute the dividends once I or my mom becomes the owner of the Company? Thanks.



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Old 09-28-2015, 08:37 PM
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Originally Posted by javierremos View Post
. My question is that the C-Corp has Accumulated Earnings and whether the court decides me or my mom as the owner of the C-Corp, does the C-Corp have to distribute the dividends once I or my mom becomes the owner of the Company? Thanks.
I guess it depends; as you can see, The decision to pay out a portion of the c corp profits to shareholders is a complicated task; the articles of incorporation, the bylaws or both instruments grant the board of directors authority to decide to pay dividends to shareholders. Dividends are USUALLy paid only from a C-corp earnings ;it is not bad to issue dividends to reduce amt of accumulated earnings for the C corp.
ALSO, I am not sure if this is your current situation, not every C-corp with retained earnings faces accumulated earnings tax consequence; just those whose retained earnings are considered excessive to their business needs. Then the c corp. needs to distribute the dividends ;in general, any accumulated retained earnings in excess of what is reasonable can be seen as a means of tax avoidance. Even if the accumulated earnings are good for the stock, it’s still considered an avoidance measure, especially since shareholders can then liquidate their shares at a higher price and face the capital gains tax only on proceeds in excess of their tax basis in the stock. However, if you own a C corp and you pay yourself "excess compensation" in salary or bonus in order to distribute profits from your business earnings, the IRS MAY recharacterize some / all of it as a constructive dividend. And, they'll likely tack on a non-deductible penalty as well.



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Old 09-29-2015, 12:08 PM
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C-Corp

Thank you very much. Do I need to pick up any income if I become the 100% owner of the C-Corp?



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Old 09-29-2015, 02:08 PM
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Originally Posted by javierremos View Post
Do I need to pick up any income if I become the 100% owner of the C-Corp?
In general, the corp must issue a Form W-2 to you as you are a statutory EE of the corp. Officers'/ownerrs’ salaries can vary dramatically between industries and even within industries based on the size and profitability of the companies involved ;to determine on your salary depends on industry, legal structure, and profitability. The key to avoiding trouble with the IRS is deciding what's reasonable; to decide how much compensation is reasonable , you need to find comparable rates of pay in similar companies for officers with similar job duties, abilities, backgrounds, and accomplishments .also you may use the minutes of the corp's board of directors to document the reasons for the amount of compensation paid.When your compensation is being increased in the current year, then y ou need to make up for earlier years in which it was too low, and you also need to make sure that the minutes of the corp reflect this.You can Avoid paying compensation in direct proportion to the stock owned by the corp's shareholders. The IRS might treat it as practice as disguising your dividends.with the C-Corp, which can deduct compensation but not dividend payments, there is a tax advantage to taking money out of the corp as salaries and bonuses rather than as dividends;however, your C-Corp is profitable, as said, you usually need to pay at least some dividends to shareholders. "This avoids giving the impression that the corp is trying to pay out all of its profits as compensation.



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