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@Harvest wrote:

Since the company had a loss my understanding is that there is no need to run payroll, even though they did pay the owner a small salary (higher than most employees). There was no loan document, so this definitely falls into distributions.

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Um no.  If the company had a loss AND the owner did not take any money out, there may not be a need for payroll.  But if the owner took money out, that FIRST is applied to reasonable compensation/payroll.  So that brings us back to my prior comment, was "reasonable compensation" paid?   If not, it should be payroll.