The reference in § 162(a)(1) to “other compensation” includes all current and deferred compensation.
Deferred compensation includes employer contributions to qualified retirement plans and non-qualified deferred compensation arrangements. The current value of any equity-based compensation, such as stock options, is also considered. The costs of welfare benefits and fringe benefits are also included in total compensation for this purpose.
Therefore, the total value of all cash and non-cash “compensation” (whether or not currently taxable) must be taken into account in determining reasonable compensation.
However, for welfare and fringe benefits, the focus is generally on whether the benefits are comparable to those provided by similar companies to similar employees, rather than the actual cost or value. If the benefits are comparable, then their cost and value may not need to be determined. On the other hand, when an individual is not provided benefits comparable to that of his or her peers, additional cash compensation may be used instead. In contested cases, expert witnesses may be expected to help make this determination and to quantify the amount of cash needed to make up for absent benefits. See Brewer Quality Homes, Inc. v. Commissioner, T.C. Memo 2003-200.