When it comes to the C Corps, the letter of the law rules supreme. Architect Robert F. Vanney, the sole owner and employee of a professional C Corp, found out just how crazy C Corp rules can be when he was denied a company deduction for his salary check just because he didn’t cash it right away.
The Tax Court’s reasoning for denying the deduction was that at the time the check was written, the corporation didn’t have enough funds to cover the expense. Which is why Mr. Vanney held off on cashing the check.
Couldn’t the corporation have just gotten a loan to cover the salary check? Sure. But for some reason, the Tax Court insisted that because Mr. Vanney didn’t get a loan to cover his salary check on the day it was written, it wasn’t deductible.
The case is being appealed, but the moral of the story is: if you have a C Corp, know those rules inside and out.