The "reasonable salary red flag" starts waving when you have taxable income or you are taking distributions (cash or property) from the S-Corp.
The IRS guidelines for Reasonable Compensation state: The amount of reasonable compensation will never exceed the amount received by the shareholder eithe... It does not mention profit or loss at all but instead talks about ‘amounts received’ by the shareholder. Therefore it does not matter whether or not the company is making or losing money; what matters is whether or not the S Corp owner is taking money (or other items of value).
This article provides an example of where reasonable compensation comes into play with an S-Corp reporting a loss: http://rcreports.com/blog/how-an-s-corp-can-lose-money-and-still-be-required-to-pay-reasonable-compe...
