The Insider’s Guide to Reasonable Compensation

S Corporation Reasonable Compensation and IRS Enforcement

By Eric L. Green

There has never been a better time to add IRS Representation to your practice and help taxpayers resolve their back tax issue!

TG Publishing Softcover Print & eBook
Copyright 2024

Print and eBook Available Now!


Please note that this book is a softcover guide with a black and white print interior.

Since 2010 a parade of Court Cases, IRS Factsheets, Job Aids and Internal Memos, plus Heightened IRS scrutiny and Preparer Penalties has brought the issue of “Reasonable Compensation for S Corps” out of the shadows and placed it forefront as a priority issue for Tax and Financial professionals to cover with their clients.  The Insider’s Guide to S Corporation Reasonable Compensation and IRS Enforcement explores key court cases, IRS guidelines, preparer penalties and some of the obscure tools the IRS has put in place.  The guide will debunk common myths and fiction on how reasonable compensation should be calculated and replace it with facts and methodologies that the IRS relies on, so that you can help clients set their reasonable compensation and defend it if the IRS comes knocking.


  • About the Author
  • Forward by Paul S. Hamann
  • What’s Up With S Corporations and Reasonable Comp?
  1. Advantages of Distributions versus Wages
  2. The Courts Weigh In On “Reasonable Compensation”
  • David E. Watson, P.C. vs. United States
  • Sean McAlary Ltd, Inc. v. Commissioner
  • The takeaway from Watson & McAlary
  1. The IRS Criteria and Guidelines for Determining Reasonable Comp
  • The Definition of Reasonable Compensation:
  • Tools for Compliance: Audit and Education
  • Employee Classification: 1099 vs. W-2
  • Reclassification of Distributions as Wages:
  • Criteria for Determining Reasonable Compensation:
  1. Profitability of an S Corp vs. Distribution of an S Corp
  • The Focus on Distributions:
  • Case Study: Scott Stone and Stone Concrete:
  • Planning Opportunities and IRS Guidelines:
  • Conclusion on Profitability and Reasonable Comp:
  1. Reasonable Comp in the IRS: Past, Present, and Future
  • Establishing Authority: Joly v. Commissioner and Veterinary Surgical Consultants
  • The Compliance Study and the GAO Report:
  • Resurgence of Challenges and Training Initiatives:
  • Specialty Examination Employment Program and Preparer Penalties:
  • A Real-Life Case: The Story of Bob
  • How to determine reasonable compensation using the IRS’s own Internal Job Aid
  • Burden of Proof and Three Approaches
    • The Cost Approach
    • The Market Approach
    • The Income Approach
  • Conclusion of the IRS’s Internal Job Aid

“The guide and forms are gold to my office. Thank you!”

Mabelle A., EA