Hi, BobKamman,

Thank you for your reply.

I also subscribe to the "too good to be true" advice.

It's okay if the LLC withholds tax on the distribution to the Texas S corporation. I think the withholding tax would pass through to the shareholder employee on a K-1 and could be refunded if the employee files a California tax return. Again, there would be no K-1 from the Texas S corporation since income would have been zeroed out by the payment of wages.

Incidentally, this apparently would not work if the Texas entity were a Texas LLC taxed as a partnership, a Texas partnership, a Single Member LLC, or if the individual were self-employed, instead of using a Texas S corporation.

Best wishes,

Michael