Reasonable Compensation Job Aid for IRS Valuation Professionals

The Reasonable Compensation issue usually involves a determination of whether the amount of compensation paid is reasonable so that it is deductible under section 162 of the Internal Revenue Code for income tax purposes. In some cases, the Reasonable Compensation issue comes up when the amount of compensation paid may be lower than reasonable to avoid the payment of employment taxes.1 For tax-exempt entities, the issue involves the application of section 4958, taxes on excess benefit transactions, and reflects a concern that excessively high compensation may unduly enrich officers, directors, trustees or key employees of the tax-exempt entity at the expense of the qualified charitable purpose.
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Shareholder Disputes at Closely-Held Businesses

Over the last twenty years, an increasing number of attorneys have contacted me about litigation among shareholders of closely-held businesses. Shareholders of closely-held businesses in various parts of the United States are embroiled in litigation with each other over the amount of compensation that one or more of the shareholder-officers received. These lawsuits seem to…
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Helping S Corporations avoid Unreasonable Compensation Audits

© 2015 American Institute of CPAs - All Rights Reserved.  Reprinted with permission from the June 2015 issue of Journal of Accountancy. Find out what entries on Form 1120S may trigger these audits. By Stephen D. Kirkland, CPA, CMC, CFC, CFF Since compensation is subject to employment taxes (including Federal Insurance Contributions Act taxes) and…
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