First reasonable-comp report free. Get started →
Methodology

Two methodologies. One workspace.

Salary on IRC §162 + BLS. Basis on §1366/§1367 + Form 7203. Both transparent, repeatable, audit-ready.

Salary methodology Basis methodology
Pillar 01

Reasonable comp

Three IRS-recognized approaches on a 6-step pipeline. BLS OEWS wage data. Confidence-scored.

IRC §162 BLS OEWS Many Hats Method
Salary methodology
Pillar 02

Shareholder basis

§1366/§1367-ordered stock-basis cascade. Form 7203 import seeds prior-year history. Year-over-year correct.

IRC §1366/§1367 Form 7203 §1367 cascade
Basis methodology
01 Salary methodology

A six-step analysis pipeline.

Six inputs run through one pipeline. The output: a salary range, a confidence score, a methodology trail, and the audit-ready report.

01

Role & duties

What hats?

02

Financials

Revenue · scale

03

Market data

BLS OEWS

04

Defensibility

Cross-validate

05

Confidence

0–100 score

06

Report

PDF · audit pack

Three IRS-recognized approaches

Cost, income, and market approaches.

Three perspectives on the same shareholder. When the approaches agree, the result is highly defensible. When they diverge, the report flags it for further review.

Primary

Cost approach

Many Hats Method

What would it cost to replace every role the shareholder performs?

Marcus Reyes · weighted roles

General Manager
40% $142K
Sales Manager
25% $98K
Operations Lead
20% $78K
Customer Support
15% $56K
Weighted blend → $112K
800+ SOC codes · geographic + experience adjusted
Validation

Income approach

Independent Investor Test

Does the company still earn a reasonable return after paying the proposed salary?

Atlas Mfg · post-salary return

Net ordinary income $475K
Less: Officer comp −$124K
Remaining return $351K
ROE on equity 18.4% · passes
Damodaran / NYU Stern industry data
On the roadmap

Market approach

Industry comparison

Direct salary benchmarks from comparable companies in the same industry + region.

Distribution · 248 comparable firms

$119K
$85K p50: $111K $144K
Geographic + size adj. OH metro
Third-party salary surveys

Blended → Recommended

$118,400

Weighted average of all three approaches. Defensible range: $85K–$144K.

Cost: $112K Income: $124K Market: $119K

Confidence

87%

All 3 approaches agree

02 Basis methodology

The §1367 cascade, in statutory order.

Stock basis arithmetic is non-commutative. A common source of basis errors is applying these steps in the wrong sequence; SafeRatio applies them in the order §1367 prescribes.

Marcus Reyes · TY 2026 · §1367(a) ordering

01 Opening basis
$148,200
$148.2K
02 + K-1 ordinary income
+$96,400
+$96.4K
03 + Tax-exempt income
+$3.8K
04 − Distributions
−$220,000
−$220K
05 − Non-deductible exp.
−$2.1K
06 − Losses + deductions
$0
= Ending basis
$26,250
$26.3K

Why the order matters

Distributions are subtracted before losses (§1367(a)(2)(A)). Reverse them and you'll deduct losses that should be suspended — and the distribution might land tax-free when it should produce gain.

Form 7203 onboarding

Form 7203 mapped to the ledger.

Each Form 7203 line corresponds to a ledger entry. Sub-totals are validated against the form's identities before any entries are written.

Form 7203 (Rev. December 2025)
Part I
L1Stock basis at beginning of year 148,200
L3aOrdinary business income 92,180
L3bNet rental real estate income 0
L3kTax-exempt income 3,800
L6Distributions 185,000
L8aNon-deductible expenses 2,100
L11Allowable losses + deductions 0
L15Stock basis at end of year 148,200
Ledger entries seeded
Tax year 2025
L1 initial_basis (Jan 1, 2025)
$148,200
L3a income_allocation
$92,180
L3k tax_exempt_income
$3,800
L6 distribution
−$185,000
L8a non_deductible_expense
−$2,100
L15 → Seeds 2026 opening
$148,200

Identity checked

L5 = L1+L2+L4

✓ closes

Parser confidence

~1.4s · OCR-free

✓ math validates

Rolls forward

L15 → next opening

✓ no manual re-entry

Why both pillars together

One salary number, used three ways.

Salary analysis output

$118K

Recommended salary from the three-approach analysis.

Forecast officer comp

+$118K

Flows in automatically as officer compensation on the P&L grid.

Resulting ending basis

$26.3K

After the K-1 share is allocated and distributions are drawn down.

The deliverable

Every methodology step cited.

24 pages. Inputs, BLS data sources, calculation steps, IRC §162 references, and the defensibility rationale. Attached to the file as the report generates.

Download the 24-page sample
Sample SafeRatio methodology report
Page 1 of 24
Defensible documentation

Every step of the methodology cited in the report.

Salary on IRC §162 + BLS OEWS. Basis on §1366/§1367 + Form 7203. Inputs, sources, and logic all in the file.

Get started Free reasonable-comp report

Exhibitor at NAEA Tax Summit 2026