Watson V. United States – The FICA Tax Dispute Concerning Wages And Distributions To Professional Employees/Owners

The articles discusses the attempts by legal entities to avoid the payment of taxes (FICA and FUTA) by reducing liabilities by distribution of assets as wages to employees. The case of Watson v. U.S., typifies the controversy surrounding the claim by the IRS that taxpayers have underpaid their said tax liabilities. Watson, a CPA, incorporated his practice in which he was the sole officer, director, employee, and shareholder. The corporation was a partner with an accounting firm. He received a profit distribution and wages from the larger accounting firm. Ultimately, the taxpayer was required to list part of the alleged profit distribution as wages. The Watson and other cases are discussed concerning how such determinations are decided