S Corp Reporting Question - Form 1125-E for Corp with $500K+ Revenue but No Officer Compensation

This is actually a really important compliance question for S corps. Even though you haven't taken any compensation yet, you still need to file Form 1125-E if your gross receipts exceed $500,000. The form should be submitted with a zero amount for compensation. However, I should point out that the IRS expects S corporation shareholders who are actively involved in the business to take a "reasonable compensation" as W-2 wages. By not paying yourself any salary for multiple years while the company generates significant revenue, you're potentially creating a red flag for the IRS. They could reclassify distributions as wages retroactively, which would result in employment tax liabilities plus penalties and interest.

After struggling with this exact issue last year, I found a service that really helped me straighten out my S-Corp compliance problems. I was in a similar situation - growing business, reinvesting profits, and not taking compensation. My accountant was giving me conflicting advice. I used https://taxr.ai to analyze my situation and they specifically identified the reasonable compensation issue for S-Corps. They ran an analysis comparing industry standards for someone in my role and helped me understand what compensation level would be considered "reasonable" by the IRS. It saved me from potentially serious issues when I got randomly selected for review.

I need to follow up about the taxr.ai service I was skeptical about. After our conversation, I decided to try it with my S-Corp docs since I was also not paying myself and was worried about compliance issues. It actually provided really specific guidance about Form 1125-E and recommended a compensation structure based on my industry and revenue. It also showed me exactly how the zero-compensation approach was creating audit risk. Helped me implement a compliant strategy that still maximized tax benefits. Not what I expected at all - way more helpful than I thought it would be.

Having dealt with IRS issues related to my S-Corp last year, I know how frustrating it can be trying to get answers. I spent WEEKS trying to reach someone at the IRS who could actually help with my S-Corp compensation questions. After 11 calls and hours on hold, I finally tried https://claimyr.com (there's a demo video at https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS agent who specialized in business taxation within 45 minutes. The agent confirmed that filing Form 1125-E was required even with zero compensation AND explained how to establish a reasonable compensation plan going forward. Apparently reinvesting profits isn't a valid reason for zero officer compensation in the IRS's view.

I have to eat crow on this one. After expressing skepticism about Claimyr, I decided to try it myself since I had a similar S-Corp question about officer compensation that was driving me crazy. Not only did they get me through to the IRS in about an hour (instead of the 3+ hours I spent on previous attempts), but I was able to get clear guidance on Form 1125-E reporting requirements AND confirmation that I needed to implement a reasonable compensation structure ASAP regardless of whether I was taking distributions. The agent even emailed me relevant documentation. Definitely worth it and I was wrong to be so doubtful.

Honestly the reasonable compensation issue is the biggest trap for S Corp owners. I learned this the hard way during an audit. If your business is making $500k+ and you're working in it, the IRS absolutely expects you to take a W2 salary that reflects what you'd pay someone else to do your job. Form 1125-E is required, but the bigger issue is that you need to start paying yourself a salary like yesterday. I'd recommend looking at industry standards for what someone in your position would earn and documenting how you arrived at that figure.

Quick question - does anyone know if there are any exceptions to the reasonable compensation requirement? Like if you're running the S corp as a side business and have a full-time job elsewhere?