A S-corporation owner must report his/her share of the S-corporation’s income on his/her personal income tax return (Form 1040) whether the corporation made any distributions to the owner. Distributions occur when the corporation gives out money or property to the share holder on account of his/her shares in the company (as opposed to wages paid for for work done). What federal tax law says is that for a S-corporation shareholder who works for the company any distributions will be treated for tax purposes first like payment of wages up until the point that the owner has received reasonable compensation for the work he or she has done for the corporation. Thus, distributions treated as wages are subject to federal employment taxes (reported on Form 941) and unemployment taxes (Form 940). So the company would be obligated to withhold income tax and the employee’s share of FICA tax (Social Security and Medicare tax) and also pay the employer’s matching share of FICA taxes. The corporation would also have pay those taxes with periodic deposits. The company also pays federal unemployment tax, but for just one employee this tax is very small.
So if your corporation actually distributed any money or property to you and at that time there was work you had done that you still had not yet been paid a reasonable wage for doing that distribution should have been treated like the payment of wages at least up to the point that you had been paid for all the work done. If such a distribution did occur and you did not treat it as wages then yes, your corporation has a problem because it failed to pay the 941 and 940 taxes due for the wages that were deemed paid. Like any other return, the form 940 and 941 are subject to a 3 year statute of limitation for assessment (SOL), but the SOL only starts to run once you have filed the returns. Until you file the returns, the IRS can make that assessment of tax (along with penalties and interest) at any time. It could come after you 50 or 100 years from now for it when no returns have been filed. What you’d need to do is get those returns filed and pay the tax, penalties, and interest due on them to fix the problem. As you presumably have paid the income tax on your profit from the S-corporation what this boils down to is that you’d have FICA taxes to report and pay on the Form 941 and unpaid unemployment tax to report and pay on Form 940. If this is your situation I would advise you to see a tax pro (not the one who screwed it up) to get this fixed.