Corporate officer/shareholder or LLC member(in which the LLC has elected to taxed as a corporation for income tax purposes pursuant to the Internal Revenue Code 39-51-207(3), MCA), that provided services to their company and payment from the company must report reasonable compensation for the services provided.
Compensation received by the officer/shareholder or LLC member for services provided to the company can come in a variety of forms, such as:
- Wages as defined in the 39-51-201 (25)(a), MCA;
- Loans to the officer/shareholder or LLC member, unless the loan is to be repaid under a written schedule [ARM 24.11.2501 (1)(f)];
- Distributions/draws taken for services performed, even though designated as profits or dividends [ARM 24.11.2501 (1)(g)]; and
- Third party sick pay when the employer pays the insurance premium [ARM 24.11.2501 (1)(h)].
- Cash value of remuneration paid in any medium other than cash such as groceries, utilities, and the personal use of a company car [39-51-201(25), MCA and ARM 24.11.2501].
In determining reasonable compensation for the officer/shareholder or LLC member, the following factors are used, if available:
- The qualifications and role in the company, including the hours worked, position in the company, duties performed, size of the company and the general economic conditions of the area.
- Comparison of reported compensation with compensation paid by similar companies for comparable services. Montana Labor Market Information is used as a resource.
- Review of the company’s wage policy for all the company’s employees.
Questions pertaining to officer’s reasonable compensation can be answered by contacting the UI Contributions Bureau
