Here is an interesting tidbit presented by the California Estate and Business Law Blog.
According to Turbotax the S Corporation has the lowest risk of audit for the various business entities. Those audit risk percentages are:
S corporations .19%
C Corporations .71%
Sole Proprietorships 2.13%
But if you play by the rules it really should not matter which business entity you use.
Update on December 1, 2006: See this article from Inc. Magazine which I spotted on the New York Small Business Law blog (thanks Imke) concerning the rise in S corporation audits. Again, play by the rules and it won’t matter.