IRS Audit Case: Why This S Corp Real Estate Developer Got Flagged on Salary

Описание: When the IRS audits an S Corporation, they don’t always start with revenue.
In many real IRS audits, the first thing examined is officer compensation — especially for profitable, actively operated businesses like real estate development companies.
In this video, Ivy Smart Tax breaks down a real IRS audit case involving an S Corp real estate developer who was flagged not for income issues, but because the owner’s salary no longer matched the role he was playing in the business.

🔍 What this IRS audit case covers:
1. Why the IRS often starts S Corp audits with officer compensation
2. How the IRS evaluates salary vs. distributions in real audits
3. The difference between operating real estate businesses and passive investments
4. Why business growth increases audit risk
5. How the IRS determines reasonable compensation for S Corp owners
6. What happens when distributions replace wages
7. Why hiring managers or staff does not automatically reduce salary risk
8. How compensation issues can lead to reclassification, back payroll taxes, penalties, and interest

This case shows how a salary issue — not revenue — became the entry point for a full IRS audit.
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👥 Who should watch this video:
This video is especially relevant for:
1. S Corporation owners
2. Real estate developers and operators
3. Construction and development businesses
4. Profitable small and mid-size businesses
5. Business owners paying themselves a low or flat salary
6. Owners scaling their business without updating their compensation structure

If your business has grown but your salary hasn’t changed, this is a risk worth understanding.

🎯 Main takeaway from this IRS audit:
The IRS wasn’t questioning whether the business was legitimate.
They were asking one question:
Does the owner’s salary reasonably reflect the work being performed?
When compensation no longer matches the owner’s role, the IRS may step in and reclassify distributions as wages.

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Chapters:
00:00 Why IRS audits don’t start with revenue
00:39 Real IRS audit case overview
01:15 How IRS audits actually begin (system + human review)
02:19 Why S Corporations get flagged on salary
02:55 What the IRS looks at first in an S Corp audit
03:28 Operating vs passive real estate businesses
04:26 The IRS’s core compensation question
05:13 Common S Corp salary misunderstandings
05:22 Does hiring staff reduce salary risk?
05:40 How the IRS determines reasonable compensation
05:50 IRS audit conclusion
06:00 Financial impact of salary reclassification
06:24 Final takeaway for S Corp owners
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⚠️ DISCLAIMER
This content is for educational purposes only and does not constitute tax advice.
Every tax situation is different. Always consult your CPA or tax advisor regarding your specific circumstances
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