S-corp and definition of compensation

[cpc0506]

We have a 'new' client. The company is an S-corp. The owner receives a w-2 and a k-1. The prior TPA used both the owner's w-2 pay and k-1 earned income as his 'compensation' for testing purposes, limits, contributions, etc.

I always thought that for a s-corp, the definition of compensation could only be w-2 comp. Am I missing something? Can anyone provide some guidance?

Thanks.

[Bill Presson]

We have a 'new' client. The company is an S-corp. The owner receives a w-2 and a k-1. The prior TPA used both the owner's w-2 pay and k-1 earned income as his 'compensation' for testing purposes, limits, contributions, etc.

I always thought that for a s-corp, the definition of compensation could only be w-2 comp. Am I missing something? Can anyone provide some guidance?

Thanks.

K-1 income for an s-corp is not earned income and cannot be used.

I remain stunned that this issue still comes up (for the other TPA, not you Kathy).

[Belgarath]

What Bill said. You can also refer them to the Durando case, and PLR 8716060 for more information on the subject.