Question

Rolando works for an S corporation for which he is the sole shareholder. Although he provides an extensive amount of services on behalf of the S corporation, he does not pay himself any salary, electing only to make distributions to himself at year end. How might the IRS treat those distributions

Answer 1

The IRS treats an S corporation as a pass through entity, this means that it is not taxed directly like a C corporation, instead, its shareholders are taxed. In this specific case, Rolando must pay taxes as ordinary income for all the net profits (or losses if the case) that result from the S corporation's activity.