Please don't let me ask this question.....

[schirallicpa]

Small S corp has made a very decent income for 2020.  Originally owned solely by one person, during 2020 a second person signed on as shareholder providing some needed capital.  However, this second person is only acting as an investor, and is not active in the business.  He is holding a 35% share.  He doesn't not want K-1 income.  I'm not sure if there is such a way to not share the income with a shareholder.  He's telling my guy that I should know what to do.  I feel like this is B.S. but thought I'd put it out here.  Maybe there is something that I'm not aware of that an S-Corp guru knows. 

Just don't berate me....

 

[Max W]

I am no s-corp guru, either, but the partner will be taxed on the earnings.  If he doesn't want to take a distribution, it can be left in the company as retained/accumulated earnings.

[Lion EA]

Well, you could see if the operating agreement gives the newcomer a 35% capital stake but 0% income/loss. But if that's a different class of stock than the original owner, then the company might've lost it's S election.

[Lee B]

If he doesn't want income then his investment should be an interest paying loan.

If they wanted to do exotic allocations of revenue and deductions then they should be a Partnership.

[schirallicpa]

well - as per usual in our "clean up crew" position, this happened in Sept without my being involved with the guidance of a banker, of all people.

[Lee B]

Maybe this banker prepares tax returns too

[Max W]

Maybe it was his barber.  Which reminds of something that happened a long time ago.

My Dad was an expert at handicapping horse races.  He was so good that word got around and a wealthy customer of the company Dad worked for paid to have him wire (telegram) him picks whenever he had something good.  This went on for several months and one day the customer's barber also gave him a tip.  The man said to himself, that's curious that's the same tip my dad had sent him.  What a coincidence!   The next time he went for a haircut the same thing happened. He got another tip, same as the one my dad had sent.  

So, he asks the barber, where did you get the tip and the barber said, "Oh, the telegraph operator is a great horse picker.  He's been giving out winning tips for two months now."