As part of a plan audit on a new comp plan for a sole proprietor with 2 additional participants, the IRS agent is telling me that the sole prop is limited to 15% (reduced for self employment tax, etc.) of his compensation. I replied that his position would be true if there were no other participants, but that because there are, he could get 25% (reduced for self employment tax, etc.). The agent is still insisting that the lower limit applies. Anyone have any suggestions or agree with the agent? Why?

Just respectfully disagree and suggest that you would like a conference with his/her supervisor.