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Establishing Reasonableness Of Compensation Difficult In Irs Attackes, Michael P. Watters, Daryl Burckel

Akron Tax Journal

With this in mind, reasonable compensation determinations have developed a different twist for shareholder-employees of Subchapter S corporations. As the payroll tax burden continues to increase, it now appears that the respective positions of the taxpayer and the IRS in issues of reasonable compensation, at least in the case of S corporations, are being reversed. Thus the issue has turned to how small, rather than how large, a shareholder-employee's salary may be and still be considered reasonable.

The topic at hand centers around minimizing the payroll tax burden of the shareholder-employee. In recent years, payroll taxes have increased substantially in …