Salt Lake City UT Audit – Profile for S Corporations

Salt Lake City UT Audit  – Profile for S Corporations

A week ago I went to a Tax Seminar here in Salt Lake City UT and one of the things I learned regarding S Corporations from one of the instructors was the following:

  • S Corporations have a much lower audit profile than sole proprietorships.  In a recent study, only .4% of all S Corporations were audited by the IRS compared to a much much higher percentage of sole proprietorships.
  • This study was based on the fact that the owner was paid a reasonable and adequate wage out of the S Corporation.
I believe this is the case because the IRS views the sole proprietorship (Schedule C filer) as an unsophisticated taxpayer and thus they are prone to more errors, understatement of revenues and overstatement of expenses.  They believe that to form an S Corporation is a step up in sophistication and thus those that do it are more prone to be the opposite of what was indicated above.  Whether this approach is correct or not, I’ll let you decide, but this is an interesting finding none the less. (Salt Lake City UT Audit.)

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