Reasonable Compensation Study
What is Reasonable Compensation Study?
Source: FAQ
How it shows up in practice
A Study covers one shareholder-employee, one role and one period. Intake captures what the person actually does and the compensation already recorded. Wage evidence comes from published federal data, pinned to the release it was drawn from. Each Preparer adjustment carries a written rationale, and the Reviewer signs off, with the approval recorded in the audit log. The Firm keeps the finished workpapers and can export them.
What a Reviewer checks
Whether each figure opens to its source, whether each adjustment explains itself, and whether the conclusion follows from the facts on file. A Study records what a firm concluded and how. It is a workpaper, not a ruling, and it does not tell anyone what a shareholder-employee should be paid.
Public source
The underlying test is the compensation regulation: a reasonable allowance for salaries or other compensation, for services actually rendered. Source: https://www.ecfr.gov/current/title-26/section-1.162-7. The IRS applies it to S corporation shareholder-employees. Sources: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues and IRS Fact Sheet FS-2008-25, "Wage Compensation for S Corporation Officers" (August 2008), https://www.irs.gov/pub/irs-news/fs-08-25.pdf.
Not tax advice.