I’m a member of a CPA/accountants online group, kind of like
Polygon, although I’m neither.
Someone posted today an article about Sub Chapter S companies NOT
paying the owner enough money. If you’re sub chapter S, you can pay
distributions which aren’t subject to med care/fica, only income tax,
saving a lot of money for the owner as Sub Chapter S owners file the
tax return and all sales and expenses goes on their personal tax
But the IRS doesn’t like you to take a LOW salary to evade those med
The article is a one pager, easy to read.
Below is a response to THAT article from a CPA I’ve known (never
spoke to) for years.
The IRS is adding 14,500 new agents to TRIPLE Sub Chapter S audits.
Time to play by the rules.
Read if it interests you. David Geller
The CPA’s remarks:. You must NOW, for the first time, insist that
clients STOP saying they will wait and see if the IRS comes after
them on this issue.
You can tell them, with absolute authority, that the IRS WILL
definitely come after them if they do not have owner salaries for
profitable S corps. IRS is adding 14,500+ new agents to triple the
number of total S corporate audits. All new agents will target this
"no owner salary issue."
You can be sure this will happen, due to a recent IRS Florida pilot
program for S corp construction companies with no owner salaries. My
clients, netting less than $30,000, paid no owner salaries unless
they had commercial space. I reported payroll of 10% to 35%, on those
with commercial space or making more than $30,000, with a $7,000
minimum. The $7,000 minimum avoided problems with Florida auditors
going door-to-door, as that was the Florida unemployment maximum.
When IRS announced the program, I insisted on 35% salaries for all S
corp construction companies. The one that refused soon had an IRS
exam. The agent insisted on owner salaries of MORE THAN 100% of
income. SINCE THEY HAD NO SALARY, THERE WAS NO WAY TO EFFECTIVELY
APPEAL (I often go to Appeals and the Tax Court). My fee, and the
resultant tax, penalties and interest, put the company out of
As the Tax Court story properly says, hogs get slaughtered.