A longstanding focus of the IRS when examining a return of an S corporation is whether reasonable compensation was paid to the S corporation shareholders who work for the corporation. S corporations and their shareholders are inclined to pay too little of compensation in order to reduce payroll taxes. Why might the auditors of a state tax agency be more concerned that an S corporation paid too much compensation to the shareholders?

Question

Quizplus · Accepted Answer

The Answer of A longstanding focus of the IRS when examining a return of an S corporation is whether reasonable compensation was paid to the S corporation shareholders who work for the corporation. S corporations and their shareholders are inclined to pay too little of compensation in order to reduce payroll taxes. Why might the auditors of a state tax agency be more concerned that an S corporation paid too much compensation to the shareholders?

A Longstanding Focus of the IRS When Examining a Return