When a company’s owners ask for a questionable purchase

Dear Bob …

I work for a company that purchases a lot of home goods and furnishings. Unfortunately, I’ve run into a situation where the owners are asking me to purchase merchandise that is for their personal homes.

Of course, these items are purchased under the business account, with business resources, and without paying the proper taxes. This surely can’t be legal even if they are the sole owners. I have confronted them about it, and they say it isn’t illegal. I need advice quick!

– Shopaphobic

Dear Shopaphobic …

The purchase is entirely legal. What wouldn’t be entirely legal would be improperly handling the payroll, accounting, and tax consequences of the purchases, to disguise personal income as business expenses.

Since these are the sole owners, they are free to (for example) take cash out of the company at any time, for whatever reason they want. When they do, payroll must include the case as compensation and report it on the W2, accounting has to book it as such, and tax has to take it into account when putting the corporate tax return together.

There are also quite a few gray areas. For example: The company pays for cable service for the owners. Business expense? Yes, at least in part, if the company is a trading company and the cable service is to let the owners monitor Bloomberg from their homes.

The company uses its corporate discount to buy one of the owners a living room sofa. It’s hard to imagine a business use; this is probably personal income (but the owner gets to take advantage of the discount without penalty).

I’m not an expert on the details, nor, by the way, do I ever intend to be. To the extent possible I’d advise you to follow suit.

Your job, unless you work in Payroll, Accounting, or Tax, is to buy the merchandise as instructed, and to make sure the purchase order and invoice are correctly described and communicated to these departments so they can do their work, making sure everyone stays legal on the transaction.

I’d also suggest your job does not include providing oversight on the transaction to verify that they are doing their jobs properly, any more than their job includes making sure IT properly normalizes data designs.

– Bob