The IRS Challenged Two Ways to Avoid Paying Social Security Tax


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The IRS Challenged Two Ways to Avoid Paying Social Security Tax

	Summary: One taxpayer treated all payments from his S corporation as dividends rather than salary or wages.

People sometime use subterfuge to avoid paying Social Security tax.

They will pay dividends instead of a salary to a shareholder/employee. They will pay a bonus in hogs, instead of cash.

Chief executive officer Joseph Radtke contracted with his own S corporation so it wouldn't pay him a salary. So when it paid him any money, it recorded the payment as a dividend.

Dividends are not subject to Social Security tax and with an S corporation aren't subject to income taxes. The shareholder, not the corporation, pays income tax when the company earned the income.

The court said payments like these are for services, despite the label. So, Radtke and the company owed Social Security taxes.

* * * * * *

Highway Farms Inc. gave hogs as an employee bonus to two of its officers. If an employer pays for agricultural labor other than in cash, neither the employer nor the employee owes Social Security taxes.

The judge wasn't hog wild about what happened a few days after the transfers to the officers. The hogs were loaded onto the same truck as the company's other hogs and sold to the same buyers on the same terms. The sole purpose, said the court, of paying with hogs was tax avoidance. The company and the officers owed Social Security taxes.(more at Other Planning)

THE MORAL: Don't pig-out on tax schemes.

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Released 5-20-02