Sam Bryant is a Social Media content provider who is the majority shareholder

$($owns $80\%)$ of Bryant Media, Inc., an S Corporation, and he is married. Sam files

a return with his spouse Jo Ann as married filing jointly. The other owners are

$10\%$ owner is an investor, Jered Johnson $,$ and is also active in the business. Jerad

files a return with his spouse as married filing jointly. The remaining $10\%$ are

owned by Joseph Fenway who is only an investor not actively involved in the

business. The S Corporation$$s income is all the Bryant$$s income on their tax

return. The corporation offers engineering services. He also has ten employees

working for the Company with wages of $$750,000.$ Bryant does not receive any

regular payments from the corporation as compensation, but he withdraws

funds as the need arises. During the current year, he withdrew $$1,600,000,$ and

the total net income of the corporation is $$2,000,000.$ The corporation does not

deduct the withdraws, nor does Bryant include it in gross income. Bryant does,

report his S Corporation K$-1$ in gross income on his Schedule E of $$1,600,000$

prepared by his CPA. The other active owner $($Jerad Johnson$)$ reports $$200,000$

of S Corporation of Income on his $1040$ and received $$200,000$ of withdraws

from the S Corporation. Joseph the passive owner also receives $$200,000$ of

withdraws and reports his S Corporation income on Sch E as a single taxpayer of

$$200,000$ from his K$-1$ he received from the corporation.

Because all the shareholders have recognized the corporation$$s income in their

respective form $1040,$ neither see any reason to pay a salary. They justify the

treatment by arguing that they are not employees of the corporation, and that

the Federal and State income tax consequences are identical for both.

Please identify the issues and risks in a tax memorandum to the file of any with

the positions. Discuss all aspects all the shareholders $.$

If the facts are not present to answer the question you must provide your

assumptions in your research memorandum.