It has been clear for more than two decades – unreasonably low salaries and wages in an S corporation will, almost certainly, lead to audits, additional FICA and FUTA tax assessments, interest and penalties.1 Despite the overwhelming authority favoring so-called “deemed” wages,2 and clear warnings against the practice,3 the cases continue to be litigated. A TIGTA Report estimates that shareholders underreported $23.6 billion of compensation in 2003 and 2004.
Harl, Neil E.
"Unreasonably Low Salaries in S Corporations: A Prescription for Additional Payroll Taxes, Interest and Penalties,"
Agricultural Law Digest: Vol. 22
, Article 1.
Available at: http://lib.dr.iastate.edu/aglawdigest/vol22/iss22/1