Can someone explain why this even matters? If it's your S-Corp and all the money flows to you either way, why does the IRS care how you classify it?

The reasonable compensation analysis for your situation is complex, but I'd strongly recommend documenting your decision process thoroughly. As others have mentioned, $168,600 is almost certainly too low for a $5M law practice. One approach I've seen work well is to break down your compensation into components: (1) what you'd pay an attorney with your experience to handle the legal work, (2) what you'd pay someone to manage a business of this size, and (3) any premium for specialized expertise or client relationships you bring. You might also consider a gradual approach - if you've been taking minimal salary historically, the IRS may be more understanding of a phased increase to reasonable levels over 2-3 years rather than a sudden jump. This shows good faith effort to comply while managing cash flow. Whatever number you settle on, make sure you can justify it with market data and keep detailed records. The IRS burden is to prove compensation is unreasonable, but you want to make their job as difficult as possible with solid documentation.

I know exactly how frustrating this is! Code 898 hit me last year too and it was such a shock to see my refund reduced without any warning. Like everyone else has mentioned, definitely call the Treasury Offset Program at 800-304-3107 - they're really the only way to find out exactly what debt this is for. Just wanted to add a heads up that when you do call, ask them for the specific debt amount and the date it was referred to the offset program. Sometimes there can be discrepancies between what the original agency says you owe and what actually gets offset. In my case, there were additional fees that had been tacked on that I was able to dispute. Also, once you find out which agency it is, don't be afraid to ask them for documentation proving the debt is valid. Sometimes these old debts have errors or have already been paid but the systems don't communicate properly. You have rights in this process even though it doesn't feel like it when your refund just disappears! The whole system is definitely designed to be confusing, but you'll get through this. Most people do find out it's something they can either dispute or work out a payment plan for. Good luck with the call!

This is such a nightmare scenario that way too many people are dealing with! Code 898 is definitely the Treasury Offset Program taking your refund for non-IRS debt. Everyone's given you the right advice about calling 800-304-3107, but I wanted to add something important - when you call, write down EVERYTHING they tell you including the agency name, contact info, and the exact amount they claim you owe. I went through this last year and it turned out to be an unemployment overpayment from 2020 that the state decided was "improper" almost 3 years later. Never got a single notice about owing anything back. The most infuriating part is they can just take your money first and make you fight to get answers afterward. One thing that helped me was asking the Treasury Offset folks for the "debt referral date" - this is when the agency first sent your debt to the offset program. Sometimes there are time limits on how long they can pursue certain debts, so that date can be important if you end up needing to dispute it. Also, don't let any agency tell you that you can't dispute it because it's already been offset. You absolutely can still challenge the validity of the debt even after they've taken your refund. The whole system is designed to make you give up, but you have more rights than they want you to know about!

This is such a common frustration, and you're absolutely right that it feels one-sided! What really gets me is that the IRS essentially gets to operate like a bank - they collect our money all year through withholding, invest or use those funds, but don't pay us any return on what is essentially forced lending. The system was designed this way because it ensures steady cash flow for government operations, but it definitely favors the government over taxpayers. In other countries, some tax systems do pay modest interest on overpayments, but the U.S. has never seriously considered this. Your best bet is really to get your withholding as close to your actual tax liability as possible. Even if you end up owing a small amount (under $1,000), you won't face penalties, and you'll have had the use of that money all year instead of giving the government a free loan. The psychological benefit of getting a big refund isn't worth the opportunity cost of losing access to your own money for months.

You're absolutely right to be frustrated about this! What makes it even more maddening is that the IRS has the authority to waive interest and penalties in cases of "reasonable cause," but they almost never extend that same flexibility to taxpayers who've been essentially forced to give them interest-free loans through overwithholding. I've been tracking this issue for years, and the numbers are staggering. The average tax refund is around $3,000, which means millions of Americans are collectively giving the government billions in interest-free loans annually. If you calculate what that money could earn in even a basic high-yield savings account (currently around 4-5%), we're talking about serious money that taxpayers are losing out on. The irony is that the IRS actively encourages people to overwithhold through their messaging around "getting a refund" rather than educating taxpayers about optimizing their withholding to break even. It's in their financial interest to keep this system exactly as it is.

This is exactly the kind of thread I needed to find! I've been running a home inspection business for the past two years and had no idea about Section 179. I drive a Chevy Tahoe (definitely over 6,000 lbs) to inspect properties all over the tri-state area - probably 80% business use between client appointments, driving to properties, and picking up specialized equipment. I've been using standard mileage deduction this whole time, but after reading everyone's experiences, it sounds like I've been leaving serious money on the table. The fact that you can deduct the full purchase price in the year you buy it is incredible - I had assumed all vehicle deductions had to be spread out over several years. One question for the group: I bought my Tahoe in 2023 but only learned about my business qualifying for these deductions recently. Is there any way to amend previous tax returns to claim Section 179 retroactively, or am I stuck with whatever deduction method I used originally? My records are pretty good since I track everything for client billing purposes anyway. This community has been more helpful than any tax professional I've talked to - thanks for sharing all these real-world insights!

This thread has been incredibly educational! As someone who runs a mobile veterinary practice, I'm kicking myself for not knowing about Section 179 sooner. I drive a Ford Transit van (definitely over 6,000 lbs GVWR) to farms and homes for large animal care - probably 90% business use since I rarely use it for personal trips. The van is equipped with specialized veterinary equipment, refrigeration for vaccines, and medical supplies. I've been using standard mileage this whole time, but it sounds like Section 179 would be far more beneficial given the significant investment in the vehicle and equipment modifications. What really caught my attention is that maintenance and equipment expenses can also be deductible beyond just the vehicle purchase. For veterinary practices, we have unique vehicle requirements like temperature-controlled storage and specialized equipment mounting - these modifications should qualify as business expenses too, right? I'm definitely going to discuss this with my CPA, but wanted to thank everyone for sharing their experiences. It's amazing how much practical tax knowledge exists in communities like this that you just don't get from traditional tax advice sources. This could literally save me thousands per year!

Just went through something super similar! Got my refund early 2024, then got hit with an audit in the fall. Those codes you're seeing are pretty standard - the 420/421 codes show the examination opened and closed, and the 300 code means they found something during the audit that resulted in additional tax owed. The good news is the 421 code means the examination is officially closed, so you're past the worst part. You'll definitely get a notice in the mail explaining exactly how much you owe and your payment options. I was totally lost trying to figure out what all the transcript codes meant until someone recommended taxr.ai - it literally broke down every single code and told me exactly what to expect next. Worth checking out if you want to understand what's happening before that official notice arrives!

Been through this exact same situation! Those codes are actually telling a pretty clear story once you know how to read them. The 846 code shows your original refund, then 971 means they sent you an audit notice, 420/421 show the examination period, and that 300 code is the big one - it means they assessed additional tax based on what they found during the audit. The fact that you're seeing the 421 "closed examination" code means the audit is officially done, which is actually good news! You should expect a bill in the mail within the next few weeks showing exactly how much you owe. Don't panic though - they usually give you payment plan options. If you want to understand exactly what each code means and get a timeline of what to expect next, I'd definitely recommend checking out taxr.ai like others mentioned. It helped me decode my transcript when I was in the same boat and really reduced my stress about the whole situation!