[header] How to avoid a business tax audit [title] Pay shareholder-employees reasonable salaries. [step] Small business that are incorporated as c corporations can report lower income, and therefore pay lower taxes, by inflating salaries to executives and shareholder-employees. Doing this, to an excessive degree, is likely to draw an audit from the irs. 
To avoid this problem, keep the salaries of executives and shareholders at a reasonable level when compared to the rest of your industry. [substeps] If necessary, you should research other companies that are in a similar business and of a similar size as yours.