The more you dig into this, the more you realize that it comes down to “any given auditor on any given day.” It’s all about “facts and circumstances,” with some “what can I get away with” thrown in.

What if reasonable compensation for an owner is $60,000, but because of unforeseen events, the business didn’t make any money and actually shows a $40,000 loss before any wages are paid? Is the owner still required to collect the salary, then show a $100,000 loss on the Schedule K-1?

What if the profit before payroll is $100,000 but there were no distributions because the owner chose to invest in business real estate or equipment? Is IRS going to require a $60,000 loan because wages come before investment?

My guess is that many of these questions about S Corporation salary are from preparers whose clients were advised by someone else, on what business entity to choose. That adviser may have a good idea of what will pass muster, given that historically, S Corp owners have been audited at the low rate of 0.05 percent. $30,000 may be at the low end of “reasonable compensation” when $70,000 in distributions were also paid. But when thousands more corporations paid nothing in wages, where does IRS start? Not that I’m saying that should be a factor.