Reasonable Comp Documentation: RCReports, BLS, and Survey-Based Methods Compared

TLDR

Three legitimate methods for documenting S-corp reasonable compensation, ranked by audit defensibility and cost: (1) BLS Occupational Employment Statistics — free, comprehensive, broken down by metro area and occupation, but generic; defensible floor; (2) Industry-specific compensation surveys — $300–$2,500 per report depending on source, more granular by role and practice type, defensible mid-tier; (3) RCReports or equivalent commercial services — $250–$600 per analysis, blends BLS + survey + cost-of-living + role-specific factors into a single document with audit-ready methodology, defensible gold standard. Most ETS engagements use a combination: BLS as the baseline floor, RCReports for the synthesized analysis, industry surveys layered on for specialized practices. The written memo signed before the first paycheck runs is what makes the documentation operational — without the memo, even the best benchmark data has limited audit weight.

In this guide, you’ll learn:

Understand why the written memo matters more than the number itself (and what happens to undocumented comp at audit)
See the three legitimate documentation methods — BLS, industry surveys, RCReports — and the cost/defensibility tradeoffs of each
Get the layered approach ETS uses (BLS floor + industry survey + RCReports synthesis + signed memo)
Use the seven-section memo template the IRS expects (role, business context, benchmarks, nine factors, determination, payroll, authorization)
Avoid the most-common cleanup case — verbal comp setting with no contemporaneous documentation

#Why documentation matters more than the number itself

The IRS reasonable compensation examination doesn’t ask “what’s the right number?” It asks “how did you decide on this number, and can you show your work?” Two owners with identical $90K salaries can have completely different audit outcomes — one wins because the $90K is supported by a written memo citing BLS data, comparable-role analysis, and the nine-factor framework; the other loses because the $90K was a number their CPA mentioned over the phone three years ago.

Documentation transforms a defensible number into an audit-resistant position. The math may be the same; the legal protection isn’t.

Look — most owners we onboard for cleanup work have a reasonable comp number that’s actually within a defensible range. What they’re missing is the paper trail. We spend the first month of every S-corp engagement building the documentation, not because the number changes, but because the audit defense requires the memo.

#The three methods at a glance

Before the detail, here is how the three legitimate methods stack up on the two things that matter most: what they cost and how well they hold up at audit.

Reasonable comp documentation methods compared (2026)
	BLS OEWS	Industry surveys	RCReports
Cost	$0 (free at bls.gov)	$200–$1,500 per report	$150–$400 per report
Granularity	Occupation + metro; employee wages only	Role, practice size, experience; owner comp captured	Custom blend: entity, role, location, hours, business size
Audit defensibility	Defensible floor	Defensible mid-tier	Gold standard — three-method synthesis, dated, signed

The rest of this guide walks each method in depth, then the layered package we actually use, the memo template, and what happens when the memo is missing.

#Method 1 — Bureau of Labor Statistics (BLS) Occupational Employment Statistics

#What it is

The BLS publishes the Occupational Employment and Wage Statistics (OEWS, formerly OES) program — a comprehensive dataset of US wage data by occupation, geography (state, metro area, sometimes county), and percentile (10th, 25th, median, 75th, 90th). Updated annually. Free at bls.gov/oes.

#What it provides

For any defined occupation (e.g., “Physicians and Surgeons, General Internal Medicine” or “Real Estate Sales Agents”), you can pull:

National median wage
State median wage
Metropolitan area median wage (for many metros)
Wage percentiles at each geographic level
Employment counts (sometimes useful for context)

For a solo internal medicine physician contractor in San Antonio (Bexar County), the 2025 BLS data shows:

National median wage: $231,500
Texas median: $230,700
San Antonio MSA median: $234,500
25th percentile San Antonio: $169,700
75th percentile San Antonio: $336,800

These numbers represent total annual wages for employed physicians in the role. For a solo S-corp owner doing the same work, BLS provides the floor: at minimum, comp should be in the range of similar employed practitioners adjusted for facts like hours worked, business ownership burden, etc.

#Strengths

Free. No subscription cost.
Comprehensive. Covers essentially every legitimate occupation in the US.
Geographic granularity. Metro-area data for most major MSAs.
Updated annually. Current data reflects market conditions.
Government source. The IRS accepts BLS as authoritative.

#Weaknesses

Generic categorization. “Physicians and Surgeons, General Internal Medicine” doesn’t distinguish between a primary-care contractor, a hospitalist, and a concierge medicine practice owner. Adjustments needed.
Employee wage data, not owner-operator data. BLS measures W-2 wages of employed practitioners — not the total comp of practice owners (which often includes profit-sharing, equity, distributions). For S-corp owner comp, BLS is the floor, not the ceiling.
No business-size adjustment. A median wage for the metro doesn’t differentiate between solo practitioners and large group practices.
No facts-and-circumstances customization. Pulling BLS data doesn’t apply any of the nine IRS factors — you have to do that analysis separately.

#When BLS alone is sufficient

For clean cases — common occupations, mid-range income levels, single role — BLS data plus a written memo applying the nine factors is often enough. Examples:

Solo 1099 IT consultant making $150K, claiming $90K reasonable comp
Real estate agent making $200K, claiming $100K reasonable comp
Solo dentist making $300K, claiming $145K reasonable comp

These cases survive most examinations on BLS-only documentation if the memo is properly drafted.

#When BLS alone is insufficient

For higher-stakes situations, BLS becomes the floor and additional sources are layered on:

Income above $500K where the savings dollar is large
Specialty practices not well-represented in BLS categories
Multi-role owners (operator + sales + management)
Industries with significant variance between employed and owner-operator comp (medicine, dentistry, law)
Prior IRS examinations or high audit risk

#Method 2 — Industry-specific compensation surveys

#What it is

Trade associations and industry research organizations publish detailed compensation surveys for their professions. Common ones:

ADA Survey of Dental Practice — comprehensive dentist comp data
AICPA Management of an Accounting Practice (MAP) Survey — CPA firm owner data
MGMA Provider Compensation and Production Survey — physician practice data
NAR Member Profile — real estate agent comp
AAA salary surveys — various specialty associations
Robert Half Salary Guides — broader white-collar professional data
Mercer / Aon / Willis Towers Watson — executive comp data for larger businesses

#What it provides

Survey data is typically more granular than BLS:

Comp by practice size (solo vs. small group vs. large group)
Comp by years of experience
Comp by specialty within an occupation
Comp by geographic region (sometimes state, sometimes metro)
Total comp including bonus, distributions, equity (when applicable)

For a solo dentist in San Antonio, the ADA Survey provides comp data for solo general dentists in Texas, broken down by years of experience, practice production, and metro size. The data captures practice owner comp specifically — including profit distributions — not just employed dentist wages.

#Cost

Trade association surveys — $200–$1,500 per report. Sometimes free for association members.
Commercial executive comp surveys — $1,000–$5,000+ per report
MGMA, AICPA, ADA — typically $400–$1,500 for the relevant module

#Strengths

Industry-specific granularity that BLS lacks
Owner-operator comp captured (not just employed wages)
Practice-size adjustment built into the data
Credible to IRS when from recognized industry sources

#Weaknesses

Cost — meaningful annual expense if updated yearly
Sample size limitations for niche specialties or smaller geographies
Lag — surveys often reflect prior-year data
Methodology variance — different surveys define comp differently

#When industry surveys are worth the cost

The ROI on a $500–$1,500 survey purchase is straightforward: if the survey supports comp $5K–$15K higher than BLS data alone, the tax savings on the comp difference at 15.3% effective rate is $765–$2,295/yr — payback within one year for most practices.

For solo practitioners in well-represented industries (dentistry, medicine, accounting, law, real estate), industry surveys are nearly always worth the investment.

#Method 3 — RCReports and equivalent commercial services

#What they are

RCReports (rcreports.com) is the dominant commercial reasonable-compensation service for S-corp owners. It blends BLS data, industry surveys, geographic cost-of-living adjustments, role-weighting analysis, and the IRS nine-factor framework into a single bound report. Output is a 15–25 page PDF labeled with the date, methodology, sources, and conclusions.

Similar services exist (Salary.com Pro, PayScale Business, certain Wolters Kluwer products) but RCReports is the most-cited in S-corp practice.

#What you get

Per analysis:

Custom report tailored to entity, owner, role, location, hours, business size
Multi-source data blend (BLS + industry surveys + geographic adjustments)
Three-method analysis: Market Approach (BLS-based), Income Approach (Elliotts independent-investor), Cost Approach (replacement cost of services)
Audit-defense narrative explaining the methodology
Conclusion: defensible reasonable comp range
Signed by the preparer (the CPA or the owner)

#Cost

RCReports subscriptions: $300–$1,500/yr depending on tier and volume
Per-report cost (à la carte): $150–$400
Annual updates: included in subscription, additional cost à la carte

For preparers handling 10+ S-corp clients, the subscription pays for itself in efficiency and consistency. For owners handling their own, per-report pricing is the entry point.

#Strengths

Three-method synthesis is more defensible than any single method
Audit-defense narrative included in the report
Bound, dated, signed document that’s audit-ready out of the box
Update path for annual re-benchmarking
Recognized by IRS examiners as a legitimate methodology

#Weaknesses

Cost. Real annual expense for owners not handling multiple S-corps.
Black-box methodology in some ways — you trust the service’s data sources and weighting.
Generic role descriptions sometimes don’t capture custom situations (multi-role owners, hybrid businesses).
Still requires a memo signed by the owner — the RCReports document alone isn’t the operational documentation.

#When RCReports is the right call

For most S-corp engagements where the savings dollar exceeds $10K/yr, RCReports is worth the cost. The audit defense package is the cleanest single-source documentation available short of a custom valuation. We use RCReports as the default for ETS S-corp clients and supplement with industry surveys for specialized practices.

For very-low-stakes situations ($60K–$80K net income, marginal S-corp savings), the cost may not be justified — a BLS-based memo is sufficient.

#The combined approach we use at ETS

For most S-corp engagements, our standard documentation package layers all three methods:

BLS as the floor. Pull the relevant occupation + metro data. Document the median, 25th, and 75th percentiles. This is the IRS-accepted baseline.
Industry survey for practice-specific adjustment. If the client’s industry has a recognized survey, pull the relevant comp band for the role + practice size + experience level.
RCReports for the synthesized analysis. Generate a custom report blending the data, applying the nine factors, producing the defensible range.
Written memo signed by the owner before the first paycheck runs. The memo references all three sources, explains the chosen number within the range, and authorizes the payroll setup.

Cost for a single client: $250–$600 (RCReports per-report) + $0–$1,500 (industry survey, if applicable). Total documentation cost typically $250–$1,800 — small relative to the multi-year tax savings on a properly-structured S-corp.

#The reasonable comp memo template

The memo doesn’t need to be long. A 1–2 page document signed and dated by the owner-shareholder is sufficient. Required elements:

REASONABLE COMPENSATION DETERMINATION MEMORANDUM

Date: [Date memo prepared]
Entity: [Legal entity name], an S-corporation
EIN: [EIN]
Shareholder-Employee: [Owner name]
Role: [Job title and brief role description]
Effective Date of Compensation: [Start date for the new comp level]

1. ROLE DESCRIPTION
[Describe the owner's responsibilities, hours per week, breadth of role,
specific functions performed. Note credentials, years of experience,
specialty designation, geography. Reference resume/CV in entity files.]

2. BUSINESS CONTEXT
[Describe the business: revenue, profit margin, employee count, business
activities, complexity factors. Reference multi-year P&L summary.]

3. BENCHMARK ANALYSIS
The reasonable compensation determination relied on the following sources:

  3a. Bureau of Labor Statistics OEWS Data
      Occupation: [Occupation code and title]
      Geography: [Metro area or state]
      Median annual wage: $X
      25th percentile: $X
      75th percentile: $X
      Source date: [BLS publication date]

  3b. [Industry Survey Name] [Year]
      Practice type: [Solo, group, etc.]
      Owner comp median: $X
      Adjustment factors applied: [list]

  3c. RCReports Analysis (or equivalent)
      Methodology: Three-method blend (Market, Income, Cost approaches)
      Defensible range: $X to $Y
      Recommended midpoint: $Z
      Report date: [Date]
      Report reference: [File name in records]

4. NINE-FACTOR ANALYSIS
Applying Treas. Reg. §1.162-7(b)(3) and the case law standards (Watson,
Glass Blocks, McAlary, Elliotts):

  Factor 1 (Role/Duties): [Brief]
  Factor 2 (Background/Experience): [Brief]
  Factor 3 (Business Size/Complexity): [Brief]
  Factor 4 (Economic Performance): [Brief]
  Factor 5 (Internal Comp Comparison): [Brief]
  Factor 6 (External Benchmark): [Reference §3 above]
  Factor 7 (Comp History): [Brief]
  Factor 8 (Distribution Pattern): [Planned policy]
  Factor 9 (Independent Investor Test): [ROE calculation]

5. DETERMINATION
Based on the above analysis, reasonable compensation for the
shareholder-employee is set at $[AMOUNT] annually, paid via regular payroll
on a [monthly/semi-monthly] basis. This compensation will be re-benchmarked
annually as part of year-end planning.

6. PAYROLL SETUP
Payroll processing via: [Gusto/ADP/etc.]
First paycheck date: [Date]
Pay frequency: [Monthly/semi-monthly]
Annual gross wages: $[AMOUNT]

7. AUTHORIZATIONS
This memo authorizes [entity name] to commence payroll for the
shareholder-employee at the above compensation level effective [date].
The shareholder-employee acknowledges that the compensation has been
benchmarked and documented per IRS standards.

Signed: ________________________________ Date: _____________
        [Owner name], as Shareholder
                 and as Officer of [Entity]

The signed memo lives in the entity’s permanent records (Basecamp Permanent → Formation Documents or equivalent). The RCReports PDF, BLS data printouts, and industry survey excerpts are attached as supporting exhibits.

#What happens if the memo is missing at audit

The most common cleanup case we see: client’s prior preparer set a reasonable comp number 3 years ago without any written documentation. Now the IRS is asking how the number was determined. The conversation goes:

IRS: Please provide documentation supporting the reasonable compensation determination. Client: My CPA recommended this number. IRS: Please provide the CPA’s analysis. Client: It was discussed verbally.

At that point, the burden shifts entirely to the IRS’s reconstructed benchmark. The corporation has no defense. The reclassification proposal usually moves forward.

Reconstructing documentation retroactively (after the audit notice is received) is possible but weaker than contemporaneous documentation. We do this in defense cases when there’s no other option, but the IRS-friendly result is contemporaneous — done before the comp was set, signed before the first paycheck ran.

#Common questions

Do I need a new memo every year? Annual re-benchmarking is best practice. A new memo each January as part of year-ahead planning reflects current data and any role/business changes. If the comp number stays the same year over year and circumstances haven’t materially changed, a brief addendum to the prior memo is sufficient — but something dated in the current year should exist.

Can I use a memo my CPA writes for me? Yes, but the owner-shareholder should still sign acknowledging the determination. The memo represents the owner’s reasonable-comp setting, not just the CPA’s recommendation.

What if I disagree with the RCReports number? The RCReports output is a range, not a single number. You can set comp anywhere in the defensible range based on facts and circumstances. Going significantly outside the range without additional justification weakens the position.

Does the memo need to be filed with the IRS? No. It lives in your business records and is produced if the IRS examines reasonable compensation. No proactive filing.

Can I use a competitor’s salary data as benchmark? Competitor data isn’t a standard methodology and carries weaker audit weight than published BLS or survey data. Anecdotal references can supplement but not replace formal sources.

How does the documentation interact with payroll setup in Gusto? The reasonable comp number from the memo becomes the annual gross wages set up in Gusto. The pay frequency (monthly, semi-monthly) determines how the annual amount is divided. See the Gusto setup walkthrough for the operational setup.

What if my comp needs to change mid-year? Document the change with a memo addendum explaining the circumstances (revenue change, role change, etc.). Update payroll in Gusto effective the change date. The annual W-2 will reflect the blended actual wages.

Does RCReports work for businesses with multiple owners? Yes — each owner gets a separate analysis if they perform different roles or have different reasonable comp profiles. For 50/50 owners doing identical work, a single analysis can support both.

What if I’m in an industry RCReports doesn’t cover well? Fall back to BLS + industry survey + custom analysis. The memo carries more of the load when commercial services don’t fit cleanly. We’ve handled this for niche specialties (specialty consulting, regulated industries, hybrid businesses) by building custom analyses with multi-source benchmarks.

How do I document hours worked for the role description? Approximate weekly hours across functions is sufficient. The IRS doesn’t require formal timesheets. Reasonable estimates based on calendar, work patterns, and client/customer interaction frequency are accepted.

If you’re running an S-corp without contemporaneous reasonable comp documentation — or with documentation that doesn’t cite a recognized methodology — the Discovery call is where we fix it. We pull the benchmarks, build the memo, file it in your permanent records, and update Gusto so the documented number drives the actual payroll. My pleasure to walk you through your specific situation. Free advice either way.