Breaking the Law! – Revenue Ruling 74-44; IRC §3121(d) specifically states that an officer of a corporation is considered an employee “subject to payroll taxes on remuneration paid to services performed.” Also, the Tax Court Case Sean LTD. versus Commissioner (Summary Opinion 2013-62) states that a salary cannot be in the form of shareholder distributions or 1099-MISC payments.
as to your other question see a pro who can look at the activity. An S Corp can be the worse way possible to conduct passive activities especially real estate rental. one of the major problems that those who don't know the tax laws is that an S-corp shareholder can only deduct losses up to basis. it is not uncommon for real estate rental to produce losses due to depreciation. Also, non-recourse financing (ie mortgages) does not add to s/h basis. Or you could be trading stocks.
the IRS has many rules concerning passive activities conducted by an S_corp.
If a shareholder or a member of the
family of one or more shareholders of the
corporation renders services or furnishes
capital to the corporation for which
reasonable compensation isn’t paid, the
IRS may make adjustments in the items
taken into account by such individuals to
reflect the value of such services or
capital. IRC Code Sec 1366(e).
