Definition of Comp for Sub-S Corp. Owner

[Guest PLHart]

For a 100% shareholder employee of a Sub-S Corp. I have the following ?’s:

1. Is his comp for plan purposes limited to his W-2 or do we also include all or a portion of his K-1 income?

2. Is the deduction for any employer contribs attributable to his account taken on the corporate return with everyone elses (as it would be for a regular corp.) or is it taken on 1040 (as it would for a sole prop. Or a partner in a partnership?

Any cites appreciated!

[John Feldt ERPA CPC QPA]

The owner of the S Corp is treated like an employee for plan purposes (assuming they are not a passive investor). The S Corp dividend (the K-1 amount) is not compensation for plan purposes. Use W-2. The deduction goes on the 1120 just like the employees.

[Below Ground]

The definition of Compensation under most plan documents will say no "S-Corp Dividends" as that is the law.

[K2retire]

And this is likely to really annoy the owner who was probably advised to take little or no W-2 comp to avoid Social Security and Medicare taxes. But you can't have your cake and eat it too.

[Belgarath]

I agree with the previous posts. The only citations that I know of are PLR 8716060, and Durando vs. U.S. There's an older Revenue Ruling, 59-221, which clearly stated that pass-through income may not be used - and the Durando decision referred to this in the analysis.

[Calavera]

Here is another mentioning of S-Corp.

IRS Publication 560, page 5 - Net earnings include a partner’s distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). It does not include income passed through to shareholders of S corporations.

[jevd]

I was admiring the beauty of Kaye when Edith came into view

And I found to my dismay

That you can't have your Kaye and Edith too.