Does an S Corp owner need a salary if they perform zero services to the company?

Thanks for your insight! When you mention documenting the arrangement, what specific documentation would you recommend we keep? Would emails showing my autonomous decision-making be sufficient, or should we have something more formal? Also, is there some minimum level of involvement that would trigger the salary requirement? The owner occasionally checks in maybe once a quarter just to see how things are going, but doesn't actually make any decisions.

For documentation, I'd suggest creating a formal management agreement that clearly outlines your authority and responsibilities versus the owner's non-involvement. This should be in addition to emails or other communications showing your autonomous decision-making. Also helpful would be board minutes documenting the delegation of authority and compensation structure. Even minimal involvement like quarterly check-ins probably wouldn't trigger a salary requirement as long as these are truly informational and not directive in nature. The key question the IRS considers is whether the owner is providing services that have value. Simply being updated on business performance isn't really providing a service that requires compensation.

That sounds interesting, but I'm wondering how accurate an AI system can be for something this specific? Did you feel confident following their advice on something as high-stakes as S corp compensation? My accountant charges me an arm and a leg but says it's because each situation is unique.

I'm curious about this too. How long did the analysis take? And did they just give general advice or was it specific to your situation with citations to IRS rules? My situation is pretty unique so I'm not sure a template approach would work.

The AI analysis was surprisingly accurate because it's specifically trained on tax regulations and court cases around S corporation compensation. It took about 10 minutes to get my initial analysis after I uploaded my documents. What impressed me was that it wasn't just general advice - it provided specific citations to relevant tax code sections and court precedents. For my unique situation with non-active partners, it provided documentation templates that I could customize, plus specific language to include in our operating agreement. It outlined exactly what evidence we'd need to defend our position if questioned by the IRS.

How does this actually work? Do they just keep redialing the IRS for you or do they have some special connection? Seems too good to be true considering how impossible it is to reach someone there.

Sorry, but I'm skeptical. I've heard the IRS won't give definitive answers to hypothetical questions, and they certainly won't provide binding advice over the phone. Are you sure this wasn't just a general information call that wouldn't actually protect you in an audit?

They use a smart system that navigates the IRS phone tree and secures your place in line, then calls you when they've got an agent on the line. No special connections - just technology that handles the frustrating waiting process. It's basically what you'd do manually, but automated. Regarding the binding advice concern, you're right that phone calls alone aren't binding. However, getting clarification directly from an IRS agent gave me the information I needed to file Form 8656 requesting an official determination letter on my specific situation. I wouldn't have known this form existed without speaking to the agent, and the determination letter is binding. The phone call was just the crucial first step in getting official documentation.

That's a really interesting perspective I hadn't considered. So essentially, I'd be slowly buying the business through my work rather than just managing it for the owner? Would this potentially have tax advantages for both of us compared to the current arrangement?

Yes, exactly. Instead of you managing someone else's business indefinitely, you'd be acquiring equity over time through your work. This can have tax advantages for both parties depending on how it's structured. For you, payments applied toward business acquisition would be building equity rather than just being compensation. For the owner, they could potentially receive capital gains treatment on the sale rather than ordinary income, which typically has more favorable tax rates. Additionally, a properly structured installment sale can spread their tax liability over multiple years.

I went through this exact audit 2 years ago. The IRS initially tried to reclassify all distributions as wages for our inactive owner. What saved us was our operating agreement that clearly defined roles, board minutes documenting the owner's transition to inactive status, and communication records showing who was actually making decisions. Make sure everything is documented contemporaneously - creating documentation after the fact if you get audited looks suspicious. And the operating agreement should explicitly state the owner's current role (or lack thereof).