We have an S-corp that has been operating without paid employees for 3 years. Owners work fulltime elsewhere and are giving their time to the business without charge. All profit is being used to bootstrap the business and any gains not immediately spent remain on company books - [i.e. - it is not paid out to the (2) owner/shareholders as distribution].

Owners have been paying taxes on any profits (shown as S-Corp income on 1040).

1 - Is it legal to continue without paid employees (if not, is there some minimal threshold tht the owners must receive as employees?)

2 - Can the owners take a distribution from the corp to cover the cost of the taxes incurred by operation of the business (and if so, how is this transaction properly recorded)?