"Also a owner can also make a distribution but cannot go over the amount they pay themselves. Please correct me if I'm wrong that was my interpretation in my research."

It's a reasonableness check. It isn't reasonable to take twice your salary, bypassing payroll for the other half. It is reasonable to be paid for services, and a good test for reasonableness is the replacement cost for that same work if not being done by a shareholder-employee. And it is reasonable to pay yourself a good rate and end up with such profitability that you can take a huge distribution, as a sole shareholder, and if there were other shareholders, everyone would get a cut, even the mother-in-law that is a shareholder but does no work for the corporation and therefor is not on payroll.

"the business didn’t make any money and actually shows a $40,000 loss before any wages are paid?"

The additional piece of info is, were any funds taken by the shareholder, anyway? Because, yes, you can have payroll and also show a loss, as from loan proceeds or sales of assets. Just don't sell an unused forktruck and take that money home as distribution.

"are from preparers whose clients were advised by someone else"

And we have seen some really bad guidance. Look at how often people ask about selling their primary residence and "reinvesting the proceeds" to avoid reporting gain. That hasn't even existed for one generation of adults, at this point.

Those are just example scenarios. You would want to be able to defend your position. It's not that different from when the speed limit on our highways was "reasonable and prudent." We have great stories from people who were stopped, and didn't get ticketed.