The forty-year history of S corporation reasonable compensation battles between the IRS and taxpayers reads as lopsided as Globetrotters versus Generals, and unfortunately, we ain’t the Globetrotters.
As a reminder, as pass-through entities, S corporations generally do not pay entity-level tax on their taxable income. Instead, taxable income and other attributes are allocated among the shareholders, who report the items and pay the corresponding tax on their personal income tax returns.