A Longstanding Focus of the IRS When Examining a Return

question 49

Essay

A longstanding focus of the IRS when examining a return of an S corporation is whether reasonable compensation was paid to the S corporation shareholders who work for the corporation. S corporations and their shareholders are inclined to pay too little of compensation in order to reduce payroll taxes. Why might the auditors of a state tax agency be more concerned that an S corporation paid too much compensation to the shareholders?

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Definitions:

Individual Liability

The legal responsibility of a person to bear the consequences of their own actions or negligence, distinct from group or organizational liability.

Employee Assistance Programs

Programs offered by employers to provide confidential assistance to employees dealing with personal or professional issues that may impact their job performance.

Wellness Programs

Initiatives provided by an organization aimed at improving the health and well-being of its employees through prevention and lifestyle changes.

Health Care Benefits

Refers to the health insurance or plans provided by an employer to cover the medical expenses of employees and their families.