Business & farm

I seriously can't believe we are having this discussion. 

While there may be some individual(s) incorrectly taking that position (issuing a 1099-NEC), it will certainly not hold up if audited or goes to Court:

• While at the end of the day, the bottom line may not change, what does change is that the payor is not correct and opens the door for numerous amended returns and penalties.
• The IRS is clear in FS 2008-25 that corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code. When corporate officers perform services for the corporation, and receive or are entitled to receive payments, their compensation is generally considered wages.  The only time that this may fall outside the scope of "wages" is when an employee performs services that are outside the scope of what a typical employee is responsible for handling.  An instance is if a part-time employee who handles accounts receivable, also has a side business that performs IT services to businesses.  If that individual then performed IT services to the company, then a 1099-NEC may be warranted.
• Paying an employee (or officer in these facts) via a 1099-NEC will open the door for an IRS agent to require the S corporation to amend the 1099-NEC (reporting zero) and file a W-2.  This means that there will be late filed payroll reports and deposits and penalties.
  • The S corporation will now need to pay the unpaid corporate FICA and Medicare
  • The IRS will charge interest
  • The IRS will assess penalties
  • The individual will now need to amend their tax return to eliminate a Schedule C and report W-2 wages
  • There could be a penalty for failure to file a W-2
  • There will then be state filing changes as well
• Not an exhaustive search, but certainly not what this provider of accounting and payroll services suggests
  • https://support.businessasap.com/article/61-s-corp-payroll-colorado
• And another discussion of the matter
  • https://www.linkedin.com/pulse/w-2-1099-shareholder-employees-corps-paul-s-hamann?trk=articles_direc...