Unreasonably Low Salaries in S Corporations: A Prescription for Additional Payroll Taxes, Interest and Penalties

Date
2011-11-18
Authors
Harl, Neil
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Iowa State University Digital Repository
Abstract

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.

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