Wages vs. Distribution
The IRS requires that Distributions to corporate offices must be treated as wages to the extent they are reasonable compensation for services. Significance payroll taxes
Watson Case…IRS can reclassify paid 24,000 IRS determined the FMV.
No longer 50 50 Rule. IRS S Corp audits are increasing. Tax Gap. S corp audits up 33%
Replacement cost…FMV of services and cost to replace. Based on a number of factors and far from an exact science. Full-time is 2080 hours per year, even if you work 60 hours a week. Beurue of Labor Statistics
When you form an S Corp, IRS will give you notice…Revenue Ruling 74-44 RC never bigger than distributions. Don;t have to take a distribution at all. IRS just has power to reclassify.
Training and Experience
Duties and Resonsibilities
Time and Effort Devoted
What comparable business pay for Similar Services
Use of Formula Methodology to Determine Compensation (documentation)
Relation to Payments of non-shareholder employees
Written Compensation Agreements
Timing and Manor of Paying Bonuses