How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask R. Klein, EA Your Own Question
R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3374
Experience:  Over 20 Years experience
Type Your Tax Question Here...
R. Klein, EA is online now
A new question is answered every 9 seconds

Can a corporation pay a shareholders personal expenses IF

Customer Question

Can a corporation pay a shareholder's personal expenses IF those payments are treated as stock sale redemptions, the proceeds are paid directly to the 3rd parties on behalf of the shareholder, the expenses are not deducted by the corporation in any way, and the redemptions are still within the shareholder's basis at the same share price as originally bought? I think this gets around being classified as "constructive" or "preferential" dividends but I would like to be sure.
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

Hi and welcome to Just Answer!

Payments made to the third party on behalf of a person - are treated as made to that person - and are constructively received by that person.

How to treat these payment - that is a separate issue.

If the corporation buys shares from the shareholder - the shareholder will report the sale transaction - the gain will be (selling price) - (basis).

If the selling price is equal to the basis - the gain will be zero.

Let me know if you need any help with reporting.

Customer: replied 4 years ago.
Relist: Incomplete answer.
Expert:  R. Klein, EA replied 4 years ago.

You have a bigger issue of the appearance of commingled funds of an owner and a business and the risk that the IRS can determine that the business was used as a personal piggy bank for a shareholder. If the IRS makes such a determination (and I have seen it done), then all the corporation income is taxable and all expenses are treated as personal, and thereby not deductible.


The alternative interpretation is that these payments that are personal in nature are all considered taxable distributions on behalf of the shareholder.


Selling off one, two, twelve shares of stock for this and that is essentially a false use of equity. It's not about how you saying the corporation is redeeming shares one by one, it's the appearance of the whole activity when seen as a whole.


I think you will have MORE problems in arguing that this is redemption of shares and cause the IRS to declare a non-business use of the business entity. In other words, this strategy is incredibly dangerous.


Keep personal expenses OUT of the business for all purposes. Business money and personal money should always been clearly divided and kept separate.



R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3374
Experience: Over 20 Years experience
R. Klein, EA and 2 other Tax Specialists are ready to help you