Accruing Officer Bonus - Constructive Receipt

Technical topics regarding tax preparation.
#1
Wiles  
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6/30/14 year end corporation declares an officer bonus on 6/25/14 and will issue the bonus during it's next normal pay cycle on 7/7/14. The officers are also controlling shareholders of the corporation and have unrestricted access to the corporate funds. Therefore, they are determined to have constructive receipt of their bonus by 6/30/14 and the corporation takes this deduction on their 6/30/14 year-end tax return (Rev. Rul. 72-317; Ltr. Rul. 8630059).

Does the bonus need to be reported as compensation on the 6/30/14 Form 941?
 

#2
Doug M  
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Let's switch the quarter affected by this scenario to 12/31. If this was the fact pattern, I would say yes.

So, I say yes for 941 for 6/30/14

(this is a quote from the RR "therefore includible in the Officer's gross income as of that date." That date is referring to 6/30))
 

#3
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6/30/14 year end corporation declares an officer bonus on 6/25/14 and will issue the bonus during it's next normal pay cycle on 7/7/14.

If there is a corporate resolution/declaration, presumably it is in writing.

Does said resolution indicate a date on which this bonus will be paid?
 

#4
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If constructive receipt has occurred then it goes on the 2nd quarter 941. If not, as Chris somewhat suggests, if the corporation did not authorize the shareholder to be compensated yet, by resolution or otherwise, then you do not have constructive receipt [Tesco Driveaway Co. Inc., TC Memo 2001-294]. Now if the resolution says he gets paid in July, you don't have to include it in the 2nd quarter 941, but neither does the corp get the fiscal year end deduction, doh!
 

#5
Nilodop  
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From Notice 2005-1, on a different issue:
Q–32 When are amounts that are includible in gross income under § 409A treated as a payment of wages for income tax withholding purposes?

A–32 For the calendar year 2005, amounts includible in gross income under § 409A but neither actually nor constructively received by an employee may be treated as having been paid by an employer for income tax withholding purposes on any date on or before December 31, 2005. However, nothing in § 409A prevents the inclusion of amounts in gross income and in wages for income tax withholding purposes under any other provision or rule of law on a date earlier than December 31, 2005. Thus, amounts includible in gross income under § 409A and either actually or constructively received by an employee during the calendar year 2005 are considered a payment of wages when received by the employee for purposes of withholding, depositing, and reporting the income tax at source on wages.
 

#6
Wiles  
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Yes, the corporate resolution is in writing. I received a copy of it today. It reads:

The Board considered and discussed the services rendered by the Officers, the profitability of the corporation, and the time, energy and effort devoted by the Officers to and for the benefit of the corporation. The Chairman of the Board then indicated that it would be in the best interest of the corporation to authorize the corporation to pay bonuses in the amount necessary to reduce the Federal corporate taxable income to $50,000.
 

#7
Nilodop  
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Bonus is determined by the amount that reduces taxable income to $50,000? Is this a C corp.? That resolution, I think, is asking for trouble.
 

#8
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Good catch Lenny. that doesn't sound like corporate business, more like Shareholder business, if we assume that during these corporate formalities we're supposed to consider what's in the best interest of the corporation.

Maybe the SCOTUS should be blamed, because they seem to believe, that to some degree the shareholders concerns are the corporations concern, when dealing with closely held concerns.
 

#9
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I myself wouldn't want to rely on the constructive receipt doctrine to take an unpaid deduction for a related party.
 

#10
Nilodop  
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Nor would I, but OP's question related to withholding and Form 941.
 

#11
Wiles  
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The corporate resolution was just tongue-in-cheek. I was wondering if anybody was going to question that the formula in the resolution would make the constructive receipt doctrine void since the amount is not specified.
 

#12
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At least you're not doing this on or around 9/15. I would have the client book the entry in their software in case it's ever audited you can have the time date on your side. Plus I know the resolution was done by 6/30 because you posted this yesterday. If this is all looked at I think those facts weigh heavily in the clients favor.
 

#13
Wiles  
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Terry, you made me think of something. If it was normal process to issue employee bonuses on 9/15 (2 1/2 months after end of fiscal year), then could the shareholder-officers theoretically delay the receipt until 9/15? They have full access to take the bonus on 6/30, but they decide to just wait until 9/15.

This would give me more time to nail down that formula in the corporate resolution :)
 

#14
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Greater than 50%er shareholder is not allowed that 2.5 month rule. They must either be paid or constructive receipt by 6/30.
 

#15
Wiles  
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Constructively received 6/30. Actually received 9/15. No different than actually received 7/7 as per the OP.
 

#16
Doug M  
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Wiles-do you believe the quarter reporting of the payroll should be Q3?
 

#17
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Does the bonus need to be reported as compensation on the 6/30/14 Form 941?

Reg. 31.3402(a)-1
(b) The employer is required to collect the tax by deducting and withholding the amount thereof from the employee's wages as and when paid, either actually or constructively. Wages are constructively paid when they are credited to the account of or set apart for an employee so that they may be drawn upon by him at any time although not then actually reduced to possession. To constitute payment in such a case, the wages must be credited to or set apart for the employee without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that they may be drawn upon at any time, and their payment brought within his own control and disposition.
 


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