Besides being model husbands? They both have S corporation income that exceeds their salary — the so-called “John Edwards Shelter.”
Now that it seems that Newt Gingrich might somehow be the Republican nominee for president, his tax return has come under scrutiny. The biggest income item on the return is from an S corporation, Gingrich Holdings. His Schedule E shows top-line K-1 income of $2,478,539, offset by a $25,130 Section 179 deduction. Meanwhile, he took “only” $252,500 in salary from the corporation. His wife took another $191, 827 in W-2 wages from Gingrich Productions, Inc., which is apparently a C corporation.
That leads to this comment reported by Janet Novack:
“It appears that he is not paying his fair share of Medicare tax,” Robert E. McKenzie, a partner in the Chicago law firm of Arnstein & Lehr LLP concluded, in an email to Forbes, after reviewing Gingrich
Tags: John Edwards, John Edwards Shelter, Newt Gingrich, reasonable compensation, S corporations, Watson
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Warren Buffett doesn’t own all of Berkshire Hathaway, and it is a C corporation. Berkshire Hathaway is a real business enterprise, with its own capital at risk and its own activities. It does not depend exclusively on the services of its sole shareholder.
I don’t think that situation is comparable to the former Speaker’s.
Gingrich Holdings IS the former Speaker. Its activities are his, and its income is his. Maybe there is some income at the margin that is not related to his personal services.
Tom Daschle is reported to have been given $2 million by Alston & Bird in 2008 as a “consultant”, and that sounds about right. $250,000 is laughable as “reasonable compensation” to the former Speaker.
David, it is laughable. I wouldn’t give him a dime.
The case law doesn’t support broad assertions that he isn’t paying his “fair share.” You can argue all you want that it should be more, but there is no case where the IRS has prevailed when more than a token salary is involved.
The case law stands for the proposition that compensation paid to shareholder/employees of S corporations must be reasonable, and comparable to that paid to employees of corporations in which those employees are not shareholders. That is all it stands for.
It is a factual question.
It is true that the cases decided to date have involved egregious fact patterns, with no or very minimal compensation. That is not what they are based on, however. They are based on the compensation being unreasonably low.
To my mind, this is an equally egregious case, bordering on outright evasion, and if it were anybody else, it would be treated that way.
The Speaker is the corporation. Its income is his income. Those are the facts, and this is after all a factual question.
It is not like it is a real business, with real capital, and real other employees making real other money for its shareholders.
Seriously, who is kidding whom here?
“To my mind” is your key observation. While you can argue that the reasoning of the S corporation cases support you, there are no cases that directly face the hard issue of whether and when a $250K salary can be inadequate for these purposes.
Whether a $60K IRS agent — or a judge — would conclude a $250,000 salary is inadequate remains in doubt.
Are you suggesting that the issue is not whether Gingrich’s salary was arm’s length — that that is irrelevant? And that the real issue, the “hard” issue is what fixed number of dollars is never “inadequate for these purposes”?
Because that is not true. The question is whether, in all the facts and circumstances of the case, the Gingrich salary was reasonably arm’s length.
I think it was Upton Sinclair who said that it is hard to get a man to understand something when his salary depends on him not understanding it.
It was repugnant when Edwards did it, and it is here, too.
Joe gets it right. The allegations that Gingrich is abusing the S corporation form are inflammatory and do not ring true. It’s hard to imagine the IRS would litigate the supposed insufficiency of a $250K salary to an S corporation owner.