Drawing salary from S-corporation

[Dmitriy Fomichenko]

Looking for some feedback from tax experts. I'm asking this on behalf of a client. Client and a partner own an S-corporation. Client told me that they never took a salary from the corporation and simply take dividend distribution through K-1 which goes onto their personal tax return. 

It is my understanding that S-corporations must pay reasonable salary to shareholder-employees so I suggested that they speak with their tax preparer or consult with another CPA or accountant on this topic. I don't think they followed my advise so I wanted to ask this question of BP community. Can you provide some clarity on this subject. Reference IRS code, penalties or other consequences for not doing it, etc? Thanks!