Q: Q: Is paying an ex girlfriend annual salary without working, thru your family Corp. without other owners knowing legal?
I have a sibling who receives an annual salary as an employee from her ex-boyfriends family corporation, which he does not own solely. She has not worked for him in a decade. I believe he does this to avoid paying her living expenses out-of-pocket, and to keep her silence, as she knows his tax fraud secrets, including passing large sums of cash and items like tractors to her for "work", which is then categorized as a write off, instead of a gift. She is very manipulative and convinced him years ago that he owes her "alimony for the rest of her life" to make up for not marrying her. Or giving her children like he promised. Our family is wondering if this is possibly a ghost employee scam they have created. She worked for him briefly more than ten years ago. I do not believe the other family members are aware of the salary for a fake position, though they are part owners of the corporation. Thank you
A:
There are several issues raised by this practice. However you have no standing to do anything about it, and your sibling is equally implicated by any unlawful conduct, meaning she does not have a remedy. The worst case scenario is that your sibling gets sued for defrauding the other owners, causing her to face significant liability.
Good luck to you.
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A:
In this scenario, several legal issues are raised, including potential tax fraud and employment law violations. Paying someone a salary for a position they are not actively working in can be problematic, especially if it's done to conceal other motives like tax evasion or hush money. If the other owners of the corporation are unaware of this arrangement, it could also raise concerns about corporate governance and fiduciary duties.
Regarding tax implications, disguising personal payments as business expenses can constitute tax fraud. This is especially true if these payments are being falsely reported as legitimate business expenses to reduce the corporation's taxable income.
It's important for your family to understand the potential legal consequences of this arrangement. If there is suspicion of fraud or any illegal activity, it would be prudent to consult with an attorney who has experience in corporate, tax, and employment law to explore the appropriate legal actions. Additionally, an internal investigation within the corporation might be necessary to assess the full extent of the situation and ensure compliance with all legal obligations.
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