Masonry Magazine April 1971 Page. 20
Taxes
The IRS was recently asked for advice on whether bonuses given by a corporation to its employees in the form of U.S. Savings Bonds are "wages" for withholding and employment tax purposes. Also, the IRS was asked just what amount is to be included in "wages" with respect to each bond given.
The IRS advised that the bonds were wages and once again pointed out that the medium in which remuneration is paid is immaterial. If something other than cash is paid, then the fair value of the items is the measure of the remuneration paid. The fair value of the bonds is their value at the time they are received by or made available to the employees. Rev. Rul. 71-143.
An employer, who used a self-insured plan, made payments to an injured employee in accordance with the provisions of the Workmen's Compensation Act of his state. When asked for its position on such monies, the IRS ruled that these payments are not remuneration for employment and, therefore, are not wages for purposes of employment taxes. Rev. Rul. 71-85.
Another employer obtained an insurance policy to provide coverage for his employees who sustained injuries in the course of their employment. The State's Workmen's Compensation Act required that the employer do this. The question asked of the IRS was whether the premium (that the employer paid on this insurance) were wages for the purposes of Federal employment taxes. IRS explained that these premiums are what they are and are not to be regarded as wages paid to employees. Rev. Rul. 71-84.
The Nixon Administration has resubmitted to the Congress its bill designed to provide a number of tax aids to small business. One of the main benefits intended by the bill is the provision that would permit a corporation to deduct an amount equal to 20% of the gross income derived from obligations guaranteed by the Small Business Administration.
The IRS has recently restated its position with regard to whether a taxpayer is to be treated as an employee of a corporation for purposes of withholding and all other employment taxes.
In the case presented for review, the taxpayer was the president of a corporation in which he was the sole shareholder (with the exception of qualifying shares). In his capacity as president, the taxpayer fixed the amount of his own salary, his hours of work, and even prescribed his own duties. He was not responsible to anyone with respect to his activities.
The IRS pointed out that an officer of a corporation is an employee of the corporation unless he does not perform services or performs only minor services and neither receives nor is entitled to receive, directly or indirectly, any remuneration for the services.
Therefore, such a taxpayer is an employee and it does not matter that he is also the sole shareholder and in full charge of the activities of the corporation. Rev. Rul. 71-86.
Many corporations carry life insurance policies on its officers with the beneficiary being the corporation itself. When one of these insureds dies the proceeds of the policy is paid to the corporation. Such proceeds are not includible in the gross income of the corporation. Up to this point the IRS has no argument. However, what happens from the tax standpoint when the corporation then distributes the proceeds to its stockholders? At this point, the IRS says, the proceeds become dividends taxable in the hands of the stockholders.
The law only exempts life insurance proceeds from taxation when they are in the hands of the beneficiaries. After the proceeds of such a life insurance policy are paid to a corporation, the proceeds lose their identity. From that point on, the proceeds are to be regarded as any other funds of the corporation. Rev. Rul. 71-79.