You are not reading the correct rules for an S-Corp since they don't technically have "retained earnings" for income taxes. They are a pass thru entity and as such all profits are passed thru to the owners and are taxed in the year they are earned EVEN IF the company doesn't distribute the earnings and they "retain" them in the company account.
ALSO if the owners work the business then they MUST take a payroll and get issued a W-2 at the end of the year along with the K-1 form. If none of this makes sense then you need to educate yourself on how an S-Corp works and the owners responsibilities. Seek local professional assistance if needed so you are in compliance with state and federal rules.
