Establishing Reasonableness of Compensation Difficult in IRS Attackes

With this in mind, reasonable compensation determinations have developed a different twist for shareholder-employees of Subchapter S corporations. As the payroll tax burden continues to increase, it now appears that the respective positions of the taxpayer and the IRS in issues of reasonable compensation, at least in the case of S corporations, are being reversed. Thus the issue has turned to how small, rather than how large, a shareholder-employee\u27s salary may be and still be considered reasonable. The topic at hand centers around minimizing the payroll tax burden of the shareholder-employee. In recent years, payroll taxes have increased substantially in amount, both from an increasing tax rate and an increasing base. Annual payroll tax collections for social security amount to approximately $329 billion, of which $266 billion will be paid out in benefits. Recently, much debate has centered around these surpluses and the ever-growing payroll tax burden shouldered by America\u27s wage earners . However, although Congress appears to be considering a reduction in payroll taxes, to date, only increases in social security taxes have been legislated