This is a relatively important ruling in the courts, so important it might be headed to the Supreme Court if the taxpayer further challenges the ruling.

If you’re an S-Corp owner, pay attention. The IRS is concerned about wages being reasonable because of the payroll tax component. If an S-Corp owner is running an artificially low wage, they are avoiding payroll taxes and are instead taking the majority of their profits through distributions.

The Economic Substance Doctrine is a nifty-little tool the IRS has to disallow certain tax transactions based on intent over form. In those instances, they say those transactions lack “economic substance” and are down purely as a tax-avoidance scheme with no other purpose.

Why is this bad advice? There’s two sections of the tax code this will run afoul of - 162 and 262.

Taxpayers are incorrectly receiving balance-due notices from the IRS even though they don’t actually have anything due.

Congress actually put forth a useful bill concerning the IRS - one that requires the IRS to provide more information when recalculating a supposed error concerning a taxpayer’s return.