Well-documented corporate minutes can provide valuable supporting evidence if the IRS questions choices you make on your tax returns. Minutes are especially important when related-party transactions are involved, such as payments, loans, or distributions between the company and you or other owners. For example, the IRS may challenge the amount of your compensation. Corporate minutes that document the factors considered by the board in approving the compensation can be a defense against this type of challenge.
Another area to consider is the amount of earnings your business retains instead of distributing the funds as taxable dividends. A penalty can apply to retained earnings over a certain limit unless the needs of your business justify the amount. Corporate minutes can help by spelling out the reasons your company needs to retain funds – for example, to purchase assets or for working capital.
Does your company have a tax-qualified retirement or a stock option plan? The minutes should show decisions by the board when adopting or modifying the plan. Other information to include: annual decisions on the contribution percentage made to profit-sharing plans, and the amount of fringe benefits, such as medical reimbursement accounts.
If your corporate minutes need updating, we suggest you contact your attorney.