Newt Gingrich's tax returns might qualify him for an audit, tax attorneys tell USA Today, saying that the presidential contender may have dodged paying tens of thousands in Medicare tax. Gingrich's campaign contends that "the salary and distribution were handled properly and legally." The matter stems from Gingrich's use of what is known as an S Corporation, which sends income and losses to shareholders for tax assessment. S Corporations don't have to pay a 2.9% Medicare tax on non-salary distributions—but they are supposed to pay employees via salary to a "reasonable" extent, the IRS says.
If most of the company's gross receipts are tied to an employee's services, "then most of the profit distribution should be allocated as compensation"—a rule that would appear to apply in Gingrich's case, since his corporation's money came from speaking and TV appearances. But the candidate was paid some $2.5 million in distributions, compared to just $252,500 in salary. "The IRS might make the case his salary should have been substantially larger," said one of the lawyers. "They could challenge it, if they wished."