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Reasonable Compensation for Corporations

Reasonable Compensation for Corporations

The Internal Revenue Service (IRS) may conduct a reasonable compensation audit to determine if a corporate officer who is an owner was paid a reasonable salary as an employee for services performed. It is generally not correct for an officer of a corporation to only receive distributions and no salary. Failing to pay a salary means that payroll taxes were not withheld and paid over to the government in violation of the Internal Revenue Code. 

 

In the event a salary was paid to an owner that was too low or no salary was paid at all, it can lead to a tax controversy with the IRS in the form of a tax audit. This often ends with additional taxes owed.