Sean McAlary Ltd., v. Comr., T.C. Sum. Op. 2013-62

(solely-owned S corporation where petitioner was sole owner and real estate broker of S corporation’s real estate business; petitioner was also president, secretary, treasurer, sole director and most productive salesman of S corporation; petitioner also manager operations of S corporation; petitioner’s salary set at $24,000 annually, but was never paid; for tax year at issue, no wages paid or withheld, but shareholder received $240,000 in distributions; shareholder, for tax year at issue, reported share of S corporation’s income and loss on Schedule E - $231,454; court agreed with IRS that compensation level not reasonable; IRS utilized same “engineer” as in Eighth Circuit Watson case, and determined that $100,000 was reasonable compensation; court did not completely accept IRS salary computation, but determined reasonable compensation was $83,200 and payroll tax due on such amount; case represents first time where S corporation salary not paid any salary and court did not reclassify 100 percent of distributions as compensation). 

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