Distribution to Member of S corporation owned by multiple memmber

[vnvjewelry]

We have a LLC treated as S Corporation with 3 members. One of the members have a salary but also have distribution different than for the other  2 member ( not equally) since this member is the one that fully works and makes possible the business.  How can I enter  a different distribution which is different than the % owned ?  If I entered 33.33 % in the % ownership anything paid as distribution is divided equally between the 3 members which is not the case. 

[AmeliesUncle]

Distributions should NOT be different.  Why were they different?

Does the operating agreement state that distributions are SUPPOSED to be the same?

[Mike9241 · Accepted solution]

An S-Corp, if it wants to stay compliant, even if legally formed as an LLC, cannot intentionally make disproportionate distributions, because that would violate the single‑class‑of‑stock rule. Accidental or temporary disproportionate distributions do not automatically terminate S‑corp status, as recent Tax Court cases have confirmed.   

So for an LLC taxed as an S‑corp:

✔ Allowed

• Temporary or accidental disproportionate distributions

• Unequal distributions caused by bookkeeping errors

• Situations where governing documents still give equal rights

✘ Not allowed

• Intentional disproportionate distributions

• Operating agreements that give different economic rights

• Patterns that look like disguised compensation or loans

If it were determined that a second class of stock exists and the S-Corp election is terminated, one result could be that the S-corp income allocated to members would become subject to self-employment taxes. 

Then you get billed for the taxes, interest and penalties.