"When I was first introduced to RCReports.com, I had an S-Corp client going through an IRS audit. One of the main issues being challenged was the shareholder-employee compensation. My client had only recorded $24,000 in W-2 wages for the years 2009, 2010 and 2011 yet had taken out substantially more from the S-Corp in the form of shareholder dividends. The IRS was suggesting that the shareholder wages for those years should be around $100,000 based on their research using certain internet salary research tools.
I used RCReports.com to prepare a Reasonable Compensation Report that we shared with the IRS agent. The report did not support a salary of $24,000 but it did suggest an amount substantially lower than the $100,000 that the IRS was proposing. After studying the report the IRS agreed to reduce my client’s annual salary to $60,000 for the years in question and indicated that they were very appreciative to see that we had done some research and were able to provide a report that they (the IRS) could rely upon.
I now highly recommend that my clients prepare a Reasonable Compensation Report through RCReports.com in advance of setting up their salary in their S-Corp so that if ever (or when) challenged by the IRS they already have in hand a basis for the amount. I predict the IRS will be less likely to suggest an inflated compensation amount and you will be spared the time and headache needed to refute an arbitrary calculation. Tom Schadegg, CPA, Edmond, Oklahoma, Feb 2013