I live in Ohio but held stock in a company in Massachusetts during 2005. I paid $ 2000 in taxes for taxes due that year but have never received a distribution from the S-Corp to cover this payment. Is there anything I can do? Thanks
Get rid of one of the directors and put your own in there to protect your interests. Stu
Unless you own 50+% of the company, there's not much you can do other than decide if the value of the company is increasing enough to justify you paying taxes on its profit for future years. Minority ownership in a business always has this problem. If this is not even a publicly traded stock you can readily sell, it's even less attractive to most investors. If you decide you want to sell the stock and find there is no ready buyer, a good lawyer can help you "encourage" the company to buy the stock back or lose its S status. Mike
wrote
Talk to the Officers, Directors and other shareholders about it. You can't force the company to make distributions, and their cash flow may prohibit it at this time. Remember that if any shareholder gets a distrtribution, they all must get distributions in accordance with their shares.
-- Paul A. Thomas, CPA Athens, Georgia
This is known as "phantom income," you get treated for tax purposes as having income, but you don't receive any cash. It is a potential issue with any partnership or S corporation. Most S corporations have a shareholder agreement that provides for sahreholders to receive dividends every year to cover the shareholders' tax liabilities. You might want to take a look at the language of your agreement. If there is a provision there that provides for distributions to shareholders, there is also usually some language that describes when these distributions will not be made. Even if there is a shareholder agreement in place, the distributions don't just happen automatically--the corporation has to go through the formal mechanism of declaring and paying a dividend. The board of directors of the corporation is generally the group that has the power to declare or not declare a dividend from a corporation. You might check with someone on the board to find out what the story is. If the corporation has been losing money or doesn't have enough cash on hand to adequately service its debt, state law might actually prohibit the board from declaring a dividend.
--Chris
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