Can my corporation give me REGULAR DRAWS, LOANS OR DIVIDENDS to avoid State and Federal employment taxes?
A. No. On February 12, 2001, the IRS issued a consumer alert regarding schemes in which employers seek to avoid withholding federal income tax and employment taxes from wages paid to their employees. Joe Kehoe, Commissioner of the IRS Small Business and Self-Employed Division stated, The law is crystal clear that income and employment taxes must be paid. Evading employment taxes can have serious consequences. Employers may be subject to criminal and civil sanctions for willfully failing to pay employment taxes. One tactic appearing to grow in use to avoid payment of employment taxes involves owners/shareholders of Subchapter S Corporations who reduce or eliminate their salaries and replace the amounts with dividends since distributions of profit are not subject to employment taxes. Practitioners and Subchapter S shareholders need to be aware that Revenue Ruling 74-44 states that the IRS will re-characterize small-business corporation dividends paid to shareholders as salary when such d
