The treatment of Sub-S retained earnings that pass-through to the parent-shareholder’s tax return has long vexed mediators and lawyers in support cases. When calculating support, do we include the income which is taxable to the recipient but undistributed to him ? In a case of first impression, the Supreme Judicial Court has weighed in with some useful guidance. Courts must now determine, on a case-by-case basis, “what portion (if any) of that pass-through income realistically and fairly is or should be deemed available to the shareholder for purposes of paying child support.” Courts must (1) consider “a shareholder’s level of corporate distributions;” (2) “evaluate the legitimate business interests justifying retaining corporate earnings;” (3) “weigh affirmative evidence of attempts to shield income by means of retained earnings . . . In that regard, the corporation’s history of retained earnings and distributions may be relevant.” J.S. v. C.C., 454 Mass. 652 (9/10/09).The Greater Boston metro family law lawyers and estate planning attorneys at the Wellesley, MA law firm of Fields and Dennis serve the Greater Boston region including Allston, Arlington, Boston, Brighton, Brookline, Chestnut Hill, Concord, Dedham, Dover, Lexington, Natick, Needham, Newton, Waltham, Watertown, Wayland, Wellesley, Weston, Westwood, and all Massachusetts.
You are here: / / Retained Earnings in a Sub-S Corporation