C Corporation CPA discuses 2012 Tax Court case | Form 1120

C Corporation CPAs should look at restructuring these clients into some other type of business entity. Sometimes there’s a better way to go. Read below to see why. The only time I recommend setting up a C Corporation for a small business is when the ROBS (rollover business startup) technique provides the underlying capital. Then there’s no other choice available until the pension plan is paid back.

Ironically the 2012 Tax Court case involved a C Corporation CPA firm. Set up in 1979, they never changed their structure. Instead they funneled money to the Shareholders through consulting fees via three entities the Corporation owned. The IRS caught them by auditing their Form 1120. Naughty, naughty.

But here’s the most interesting part. The Judge was puzzled why they hadn’t switched to some pass through business entity (S Corporation or Partnership) that would have legally accomplished the same goals. They cited the Supreme Court. Essentially you can proactively set up your business to pay the least amount of tax, but if you don’t, you’re responsible for the consequences.

Why do I follow Tax Court Cases?

Sometimes tax court cases show emerging trends in tax code that can be exploited.

I’m a CPA with a virtual office to serve our non-Wilmington NC clients. Of course, I prepare Form 1120 for C Corporations. If you don’t have a local C Corporation CPA, or just like what you read, consider calling for a free phone consult at (910) 399-2705.