Owning a property with a S-corp.

[John Lee]

Hello BP members,

A couple of my family members own a commercial property with a S-Corp.

I noticed on their tax returns that they do not pay any salaries nor distributions to shareholders.

They told me that their family business (a separate S-Corp) is the only tenant and this entity just holds the property, so no salary for the shareholders.  However, they are paying one of the shareholder as a contractor for managing the minor resposibilities such as receiving rent, depositing check, etc.  Their goal is to payoff the loan as quickly as possible so they are paying down the principal every month with the income left after paying expenses, therefore, no money left for distributions.

I know they have a CPA working for them but is this acceptable?  Any thoughts?

[Elbert D.]

If I'm not mistaken I believe you would get taxed on the rental income as well as the appreciation if there was some gain and you sold it.