Fleischer v. Commissioner (Financial Advisors and S Corps)

Can a financial advisor run commissions through an S Corp? For years, the answer was “carefully,” because of one Tax Court case. Ryan Fleischer was a financial advisor working with LPL Financial and MassMutual. His agreements with both were in his own name, and the commissions were reported to him personally. He also had an S Corp with an employment agreement, and he reported the commissions through it, paid himself a modest salary and let the rest flow through as S Corp income.

Here are his numbers-

The salaries jump out, don’t they? Pigs get fed and hogs get slaughtered, as the saying goes. We suspect that salary didn’t help him, but it isn’t why he lost. Paying himself $100,000 instead of $35,000 would not have changed the outcome.

The reporting was also a little too convenient. For 2011, his Schedule C showed $266,292 of commissions and $266,292 of “other expenses,” for a profit of exactly zero, while his S Corp reported the same $266,292 as its own gross receipts.

The Tax Court decided Fleischer v. Commissioner, T.C. Memo. 2016-238, on a more basic question: who earned the income? Income is taxed to the person who earns it, a principle the courts trace back to Lucas v. Earl, 281 U.S. 111 (1930). When an individual and a corporation both claim the income, the corporation wins only if two things are true (Johnson v. Commissioner, 78 T.C. 882 (1982))-

• The individual is an employee of the corporation, and the corporation can direct and control their work in a meaningful sense.
• There is a contract or similar arrangement between the corporation and the customer recognizing the corporation’s controlling position.

Fleischer failed the second test, so the court never needed to reach the first. LPL and MassMutual contracted with Fleischer, not his S Corp, so the commissions were his, along with the self-employment tax. Reporting income through an S Corp on the tax return doesn’t change who earned it.

Why couldn’t Fleischer just put his S Corp on the contract? For a broker-dealer representative, FINRA Rule 2040 generally prohibits paying transaction-based compensation to an unregistered entity. A consultant could have signed through an S Corp. A broker-dealer rep, for years, effectively couldn’t.

The 2025 Fix (SEC No-Action Letter on Personal Services Entities)

That changed. In November 2025, SEC staff issued a no-action letter allowing a registered representative’s personal services entity, such as an S Corp, to receive commissions without registering as a broker-dealer, subject to conditions. FINRA confirmed how its rules apply in Regulatory Notice 26-12 in June 2026. For an advisor whose broker-dealer participates, the S Corp can now receive the commissions, and a written servicing agreement between the broker-dealer and the S Corp puts the S Corp on paper, which is exactly what Fleischer was missing.

But read the fine print. The broker-dealer keeps control over compensation. It instructs or approves the size and timing of the pay to each representative, and the S Corp must promptly pay it out, keeping a portion for overhead and administrative expenses. The SEC solved a securities registration problem, not a tax one. Whether that pay can be split between salary and S Corp distributions the way a typical S Corp would is a tax question the letter doesn’t answer. Work it through with your broker-dealer and your tax advisor before celebrating.

For an advisor, the practical steps are-

• Ask your broker-dealer whether it has adopted a personal services entity program under the 2025 relief. The conditions include each owner of the S Corp being registered with that broker-dealer and the S Corp’s location being designated as a branch office or an office of supervisory jurisdiction.
• Put an employment agreement in place between you and your S Corp, and update the corporate documents to match.
• For insurance commissions, check whether your state lets commissions be paid to a licensed agency entity, which is common.

If your broker-dealer won’t participate, the longer-term path many advisors take is the investment advisor world, by forming their own registered investment advisor (RIA) that elects S Corp status, so the entity is the party to the advisory agreements. Registration has real costs, but it puts the contract where the Johnson test wants it.

No PSE Program? The Service Company Path for Financial Advisors

What if your broker-dealer hasn’t adopted the 2025 program, or won’t? You can still report the commissions on Schedule C and pay your own S Corp for services, but not as a way to move whatever amount you’d like. A real corporation can earn a real fee for real services, even when you are its only employee, which is the same idea behind our management company arrangement. The S Corp doesn’t sell securities or give advice. It runs the business around you.

What can the S Corp legitimately provide? Think of everything a practice needs that doesn’t require a securities license-

• Office space, equipment and technology.
• Staff, such as a client service associate or an assistant, employed and paid by the S Corp.
• Marketing and business development support, with your broker-dealer still reviewing any communications.
• Practice management, bookkeeping and administration.

To hold up, the arrangement needs a few things-

• A written agreement before the work starts. Not a year-end invoice to make the numbers look nice.
• A commercially supportable fee. A fixed monthly fee or cost-plus arrangement is often the cleaner approach for administrative services. A fee based on a percentage of commissions deserves additional scrutiny because it could raise concerns about sharing transaction-based compensation with an unregistered entity under FINRA Rule 2040. The pricing must reflect the actual services, and the broker-dealer needs to approve the arrangement.
• Real performance. The S Corp pays the staff, the rent and the vendors, and you work for it as an employee with a reasonable salary.
• Your broker-dealer’s blessing. FINRA’s outside-business-activity rules require appropriate disclosures, and your broker-dealer might impose additional approval or supervisory requirements. Get compliance involved before you sign the service agreement, not after the first check clears.

The fee should determine what’s left on Schedule C, not the other way around. Expect some profit to stay there, with self-employment tax on it. That’s fine. The goal is moving the business costs and the work the S Corp actually does into the S Corp, not draining your Schedule C to zero the way Fleischer did. And remember, simply moving expenses into an S Corp doesn’t create payroll tax savings when considering reasonable shareholder salary.

Longer term, many advisors take a different route entirely, moving into the investment advisor world by forming their own registered investment advisor (RIA) that elects S Corp status. Then the S Corp is the party to the advisory agreements, which puts the contract right where the Johnson test wants it. Registration has real costs, but it ends the Fleischer question rather than working around it.

What About Our Mothership and Management Company Arrangements

In Fleischer, the advisor personally earned commissions under contracts in his own name and then reported that same income through his S Corp. In our mothership arrangement, the mothership earns the customer revenue and pays a separately contracted baby S Corp for services the baby S Corp provides. The baby S Corp earns its service fee, not the mothership’s customer revenue. Our management company arrangement works the same way.

A service agreement doesn’t change who earned income under an existing contract, but a real corporation can earn real income providing services to another business, even one you own. See our Multi-Member LLC That Issues Invoices section and our Holding Company Versus Management Company section for more information.

Fleischer lost, and he didn’t appeal. The lesson isn’t that S Corps and financial advisors don’t mix. Fleischer is a warning against assigning income, not a ban on legitimate service companies. WCG CPAs & Advisors works with a lot of financial advisors, and between the 2025 relief and a properly built service arrangement, there are better paths today than there were for Ryan.