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I know a large number of individuals who use the S-Corp to avoid SE taxes. That is, they open an S-Corp but continue to operate as a sole prop. draw no wages, no W-2 and no payroll taxes, just let net income flow through to the K-1.

Because of the compliance issue, what do you think about the risk involved. Most of the folks that I know will tell you that they have operated this way for years and the IRS hasn't shown any interest in them when I bring up the risk issue.

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Eventually the IRS will catch up to them and re-characterize some or all of the K-1 income as wages, at which time they will have to comply with payroll taxes, WHICH--you can also remind them about--includes federal and state unemployment tax. 

Compliance in a regulatory context is a prevalent business concern

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