Also, no, they didn't take physical money from the business, give it to the son as a payment, and then take it back and put it back into the account to receive rent from him. The son lives in the house which is paid for by the business. They also pay for the food that the whole family eats. You had said before that money taken for personal expenses are draws, which makes sense, but now you're saying I'm not allowed to do that unless actual cash passes hands? That doesn't make sense.

Are you saying that if a business owner writes a business check (or swipes a business card) for a personal expense and calls it an "owner's draw," he's breaking the law, and that he must instead write the check to himself, cash it, and use the cash to buy the thing? I grant up front I'm not as smart as you at these things, but I'm pretty sure you're wrong on this one.