Also, I'll need to persuade the client that $500 to $1,000 is a reasonable price for this service. I have told them of the laws and the risks.  

Finally, should I use a cost approach or a market approach?

Entrepreneurs are often the last ones to get paid even in an established business.  I don't think you are going to find any comps, for owner/employees.  And why do you think you need them?  IRS doesn't have the staff to audit, even the S Corps who pay no salary.  What happens if clients pay themselves minimum wage?  At worst, amended employment tax returns, and amended 1040's for the employment tax deductions.  

Facts and circumstances.  Research ChatGPT for that phrase.  

Do you have clients in similar professions to compare to?

This is a very profitable business and the ration of Wages to Distributions is about 1:2. So that will be a flag.

Considering the IRS situation, I think a RC analysis would be overkill. But now that I have alerted them to this, they said "just give us the wage amounts you think are reasonable." So I don't know if I want to back out of this project now.

At worst, I lose a client.

Do you have clients in similar professions to compare to?

Maybe. I'm not sure if asking them for this research would feel like an imposition in their busy professional lives. 

I think other practitioners have recommended a 1:2 ratio to avoid audits.  You will have to do a lot of research to find any cases where IRS took something like that to court, and won.  

"Maybe. I'm not sure if asking them for this research would feel like an imposition in their busy professional lives."

I'm not suggesting any research, just simply look at what they are showing on their W-2 to see how reasonable it is to your client's W-2.

thank you for this suggestion.

don't let the rust get to you.

Thank you for your reply BK. In light of the lack of audit risk and the possibility of hours of research, I'm going to avoid the $500 consulting fee (for RC reports) and keep my level of work on this to a minimum. Be Well.

I use https://rcreports.com/

I also use BLS, since it's regional. When we were a reporting entity, I used BLS to show an employee that, gee, we are paying you right on target for your position in this region.