NEW YORK (FORTUNE Small Business Magazine) - It may skirt legality, but owners of S-Corps often employ a trick to evade taxes: Instead of classifying their income as salary, which is subject to Social Security and Medicare taxes, they declare it as a profit distribution, which is not.

The IRS says its most recent data (from 2000) indicate that this form of underreporting by S-Corps cost the Treasury up to $5.7 billion in that year alone.

So IRS agents have recently begun to audit the 2003 and 2004 returns of 5,000 randomly selected S-Corps.

"It is a major technique for avoiding payroll taxes," says David DeJong, a Rockville, Md., lawyer and accountant.

DeJong says that there's a simple way to determine what you take as salary: Ask what you would pay someone else to do the job.

"There is an old saying: Pigs get fed and hogs get slaughtered," he says. "The lower your salary, the more chance of being adjusted by the IRS."

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