How we turn client facts into a documented reasonable-compensation position.
We start with the shareholder's actual work and business context, evaluate the evidence through Cost, Market, and Income views, reconcile the signals, and keep the supporting record connected to the final report. HearthRC Defense organizes that process so your firm can spend less time assembling the analysis and more time reviewing the client-specific judgment.
HEARTH RC DEFENSE · ANALYTICAL WORKFLOW
We start with the work the shareholder actually performs.
A percentage split can be convenient shorthand, but it does not tell us what the shareholder does, how much time the work requires, what comparable services cost, or how the economics of the business affect the analysis. HearthRC Defense starts with the client-specific facts and keeps them connected as the analysis develops.
The conclusion appears before the client-specific reasoning has been built around it.
Then use the analytical views and reconciliation to show how those facts support the final position.
Cost, Market, and Income are Hearth's analytical framework—not an IRS-mandated three-method formula.
We use Cost, Market, and Income to look at the same client from different angles.
Each view asks a different question. Hearth keeps the underlying client facts connected as the firm moves between them, then brings the evidence together in reconciliation.
What would it reasonably cost to replace the services this shareholder actually performs?
Cost starts with the actual work.
We organize the shareholder's duties, time, responsibility, and service mix so the analysis can reflect the work being performed rather than relying on a title alone.
What it adds: an evidence-based view anchored to the services the business would otherwise need to replace.The exact relevance and weight of any evidence remain client-specific and subject to the firm's professional review.
We build the supporting record alongside the analysis.
The report should not have to become disconnected from the work that supports it. HearthRC Defense keeps the core facts and reasoning organized around the same engagement while the analysis is being built.
We capture the shareholder's role.
Duties, management responsibility, proficiency, hours, time allocation, and the shareholder's actual work have a defined place in the engagement.
We keep the business context close.
Industry, geography, staffing, ownership structure, financial facts, and other circumstances stay connected to how the role is being evaluated.
We connect the evidence to the client.
Comparable compensation and other supporting evidence can be reviewed with the context that explains why it is relevant—and where the match is imperfect.
We carry the reconciliation into the file.
The firm can see how the analytical signals were brought together and keep the rationale close to the final report instead of rebuilding it later.
We keep internal and external comparables distinct, then show what each can actually support.
The label on a data source matters less than how well the underlying work and circumstances match the shareholder. Hearth organizes the evidence so its relevance and limitations stay visible during review and reconciliation.
What does this business pay for genuinely comparable work?
Internal comparables can include non-shareholder employees, related roles, prior compensation history, or other company pay information. Their usefulness depends on how closely the duties, responsibility, and scope actually match.
What does the outside market pay for genuinely comparable work?
External comparables can include labor-market data, compensation studies, and other sources tied to relevant duties, geography, industry, and experience. Their usefulness depends on how closely the data maps to the shareholder's real role.
Hearth keeps the evidence separate long enough to evaluate what each source contributes.
The firm can review the comparability, relevance, and limitations of the evidence, then carry those considerations into the reconciliation rather than letting one convenient data point decide the conclusion by itself.
A documented position should show the reasoning—not hide it behind a shortcut.
We don't begin with a one-size-fits-all split.
A percentage can be shorthand, but it does not document the shareholder's actual services, market evidence, or business circumstances.
We don't treat a wage survey as the entire analysis.
Market compensation is useful evidence. The client-specific role, business facts, and the fit of the source still matter.
We don't automatically average Cost, Market, and Income.
The views can have different strengths and limitations. Reconciliation should explain why the final position fits this client.
We don't turn documentation into a promise.
A clearer record can make the reasoning easier to understand. It cannot guarantee acceptance, prevent adjustment, or create a safe harbor.
Client facts change. We built the workflow so the analysis can change with them.
Duties change. Hours change. Staffing changes. Business economics change. Market compensation changes. That is why HearthRC Defense is organized around a client workflow rather than a one-time calculator: the firm has a defined place to return when the facts materially change.
Periodic review is presented here as Hearth's documentation practice, not as an IRS-mandated annual appraisal requirement. Exact history, persistence, and revision behavior should be confirmed against the production product before making more specific claims.
Use Hearth's free S-Corp Calculator for a quick estimate. Use HearthRC Defense when the firm needs the client-specific facts, analytical record, report, and supporting documentation behind the position.
A stronger record does not create a guaranteed outcome.
Reasonable compensation remains fact-dependent. HearthRC Defense supports the firm's analysis and documentation process; it does not create a safe harbor, guarantee examination acceptance or tax results, or replace the firm's professional judgment.
Is there a statutory safe-harbor percentage?
No. Reasonable compensation is fact-dependent. A universal percentage shortcut does not replace analysis of the shareholder's actual services and the surrounding business facts.
Are Cost, Market, and Income an IRS-required three-method formula?
No. Cost, Market, and Income are Hearth's analytical and documentation framework for considering the evidence from different perspectives.
Does every analytical view receive equal weight?
No. The relevance of each view depends on the quality and fit of the evidence for the client. The reconciliation should make the reasoning behind the final position understandable rather than mechanically averaging the views.
Does HearthRC Defense replace professional judgment?
No. Hearth organizes the workflow, evidence, and supporting record. The accounting firm reviews the work and remains responsible for applying professional judgment to the client's facts and circumstances.
Follow the reasoning into the report—or watch the workflow build it.
Use the sample report to inspect the final presentation, or walk the demo to see how the client facts, analysis, report, and supporting record stay connected.