Kenrob Information Technology Solutions, Inc. is an S corporation whose shares were owned by Mr. and Mrs. Robinson and Mark Schuler. By agreement between the S corporation and its shareholders, the S corporation was required to reimburse the shareholders for any additional income tax they paid because of their S corporation income. Under federal income tax law, the income of an S corporation passes through to its shareholders who are required to then pay the tax on the income.
In 2007 and 2008, the S corporation paid the shareholders’ additional tax When the S Corporation later filed for bankruptcy, the Bankruptcy Trustee went back for two years and alleged that the tax reimbursements were fraudulent transfers. The bankruptcy trustee sued the IRS for a refund.
The Bankruptcy Court held for the IRS, finding that though a formal fully executed agreement could not be found, the statements of the shareholders were enough to prove there was an agreement for reimbursement. Further, the fact that the shareholders did not take a distribution from the S corporation to allow it to meet its financial obligations showed the reimbursement of the shareholders’ personal income tax was not for the purpose of defrauding the S corporations’ creditors.
Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.