How does one determine what the IRS considers "reasonable compensation"? Maximum gross income is $2,000 monthly

This is a fact specific question. Consider speaking with a CPA or a tax attorney

Are my personal assets protected if I have liability insurance?

You should probably incorporate to protect your personal assets.

Am I legally obligated to return 100% of the money, if at all?

There would probably be no economical legal action but morally the money is not yours.

What is the difference between LLC, C Corp, S Corp and which is the best way to go when starting out a new business?

It all depends on your goals for the venture. You should contact a business attorney to help you decide which one would be best for you. I would...

Its protection for both parties. It looks to make sure things are done in good faith.

Is it advisable to have business A hire and pay for construction contracts executed by business B?

There would need to be an evaluation on how the businesses are structured and how terms of the contracts.

My professional reputation has been destroyed....?

Sorry about this situation, best of luck.

Employment information request for a personal injury case.

You should speak to your attorney about it. A defendant may request the information.

Can a start a new business without my partner?

Hire an attorney that deals with business law.

Is it legal for them to literally "black ball" our business not allowing us to pay for advertising as it allows other businesses

Private businesses may have discretion in allowing you to advertise.