Thank you all for your responses, especially on Christmas Eve!  Of course the situation is more complicated than I initially posted; shame on me for trying to short-cut it.  Scenario is actually very close to what qbteachmt is implying.  Yes, compensation is already paid to employee.  In the eyes of the shareholder-employee these payments represent "advances" to be taken against future bonuses payable for services rendered and/or future distributions from company profits.  Miraculously they have even documented the general idea of this in writing, complete with a mention of stated interest rates.  In theory the bonus payable is reduced by prior advances or the shareholder repays the loan.  However, since no bonus was declared and no repayments have been made, I advised that upon examination the IRS could easily argue these advances were disguised compensation. Hence my suggestion to declare a bonus to recognize some compensation.  Loan forgiveness gets us to the same place too.  Company will definitely have employee make a payment for accrued interest in good faith.  

Apologies if previously just calling these advances mislabeled distributions caused any confusion.  If that were the case I agree on amending prior quarterly reports to capture the comp in the correct quarter; however since the PEO files as the employer of record for all of the companies it manages, I don't even think that would be a viable option (they certainly didn't offer to do so).  So, assuming the above fact pattern establishes that compensation has not yet truly occurred and company is therefore not late on payroll filings, how to you proceed when the PEO responsible for processing payroll isn't on board?    

In a perfect world every single one of our clients proactively calls us before trying to get creative.  In a more perfect world those clients even listen when you tell them to explain potential pitfalls and consequences!  Merry Christmas.