Reasonable Compensation Audits
Defending S-Corp Salary Determinations and Small Business Payroll Standards
Is your S-Corp salary defensible? The IRS is increasingly targeting small business owners who take low salaries to avoid payroll taxes. We provide expert analysis and representation to justify your compensation structure.
How We Protect You
The "Reasonable Compensation" standard is one of the most litigated areas of small business tax law. We help you navigate this by:
- Audit Representation: Direct defense against IRS examinations questioning your salary/distribution split.
- Compensation Studies: Detailed reports using industry data to support your specific salary figure.
- Risk Assessment: Evaluating your current payroll practices to identify and fix red flags before the IRS notices.
- Documentation Review: Ensuring your corporate minutes and records reflect the logic behind your compensation.
Protect Your Business:
Don't wait for a notice of deficiency. Call 267-748-2020 or Request a Free Consultation to secure your compensation strategy.
Getting your S-Corp salary right isn't just about compliance—it's about protecting your hard-earned wealth.
Why Reasonable Compensation Matters
If the IRS deems your salary too low, they can reclassify distributions as wages. This results in back payroll taxes, interest, and substantial penalties. Our goal is to ensure your compensation meets the "Reasonable" standard while maximizing your tax efficiency.
Need Help with an IRS Compensation Audit?
Stay compliant and defend your business. Call 267-748-2020 or Request a Free Consultation today.
Frequently Asked Questions
What is "Reasonable Compensation"?
The IRS defines it as the amount that would ordinarily be paid for like services by like enterprises under like circumstances. It is a facts-and-circumstances test based on your role, duties, and industry standards.
Who is at risk for these audits?
Principally S-Corporation shareholders who provide substantial services to their corporation but take a low salary relative to the business's profits and distributions.
Can the IRS really change my salary?
Yes. Under Section 162 of the Internal Revenue Code, the IRS has the authority to recharacterize distributions as wages if they determine the compensation paid was not reasonable for the services performed.
What documentation do I need?
You need more than just a gut feeling. You should have industry salary data, job descriptions, time logs, and corporate minutes documenting how the salary was determined.
Representation and consulting provided by appropriately licensed professionals. Audit outcomes depend on specific facts and industry data; no guarantee of specific results. Confidentiality and data-security practices apply.
Last updated: Jan 20, 2026