You need to pay wages. Taking money out and paying self-employment tax isn't the same.
As
I've seen stated elsewhere, the fastest way to get audited as an S-Corporation
is to not report wages to officers on page 1 of the return when other
distributions are made. The IRS position is that an S-Corporation MUST pay a
reasonable compensation to an officer before non-wage distributions may be
made. The reason is that they feel that a non-wage distribution when no wages are
paid is an avoidance of social security taxes. From the IRS website at http://www.irs.gov/businesses/small/article/0,,id=203100,00.html :
"Reasonable
Compensation
S
corporations must pay reasonable compensation to a shareholder-employee in
return for services that the employee provides to the corporation before
non-wage distributions may be made to the shareholder-employee. The amount of
reasonable compensation will never exceed the amount received by the
shareholder either directly or indirectly.
Distributions
and other payments by an S corporation to a corporate officer must be treated
as wages to the extent the amounts are reasonable compensation for the service
rendered to the corporation.
Several
court cases support the authority of the IRS to reclassify other forms of
payments to a shareholder-employee as a wage expense and subject to employment
taxes."
The
page cites Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000) as one
judicial finding on the IRS's authority to reclassify distributions to wages
subject to employment taxes. Factors to determine reasonable compensation are
given in the ruling.
The
AICPA has an interesting article on this topic here: http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx
