We have an S-corporation and we pay distributions/dividends to 
shareholders. We do it more often than quarterly and not on a regualr 
basis. I have had one accountant tell me this needs to be done only on 
a quarterly basis and another tell me that we can do it as often as we 
like as long as we declare the distribution/dividend in the 
corporation minutes. Can you answer which is correct, especially with 
reference to the IRS and please provide supporting links to the 
sources from which you found your answers. 
 
Thanks, 
 
JO

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Request for Question Clarification by taxmama-ga on 20 May 2003 09:30 PDT

Hi John,

Just checking in with you this morning. 

At my workshop for the CPAs last night, I brought up
your question.

The general consensus is that the answer is not in the tax code.

a)For publicly held companies, dividends are regulated by their
state corporate laws and the SEC (Securities and Exchange Commission)

b) For privately held companies, it's pretty much the state corporate laws.


But, all agree that as long as you define your dividend policy in your
corporate minutes, and hold a 'meeting' of officers to vote on any 
distributions outside the regular policy and report that in the minutes,
you can issue dividends anytime you feel like it. 

On the other hand, they just about jumped me when I mentioned formal
dividends.

"Why is he issuing dividends?" (a spontaneous chorus from about 5 guys
at once.)

Their general consensus is that you want to sit down with someone who
is expert at S-Corps and do some re-thinking or planning on how you're
handling payments to your investors. 

After all, as an S-Corporation, all of your investors are already
paying taxes on their share of profits. 

And they're right, I've never issued formal dividends to any of my
S-Corps. They get a distribution from profits. Yes, there is a difference.
A fine line, but... 

Incidentally, in  what state are you incorporated?

Thanks for waiting for me on this.

Best wishes

TaxMama-ga

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Clarification of Question by johno-ga on 20 May 2003 10:10 PDT

We are incorporated in the state of Alabama.... I probably meant
distribution from profits, but please clarify between ditribution and
dividends if you have time.

You state :

"But, all agree that as long as you define your dividend policy in
your
corporate minutes, and hold a 'meeting' of officers to vote on any  
distributions outside the regular policy and report that in the
minutes,
you can issue dividends anytime you feel like it."

So would that mean defining a regular time period for the distribution
in the minutes (say quarterly) and then if we did it at any other time
during the quarter we would add a notation to the minutes-- or do I
even have to define a time period in the minutes....

Thanks,

JO