By Stephen D. Kirkland, CPA, CMC, CFF Originally published in The Tax Adviser, September 2022. Copyright: AICPA. EXPENSES & DEDUCTIONS It is common for business owners to personally guarantee company debts. This is a valuable service since many private companies could not otherwise obtain financing in the current lending market. Indeed, business owners already face…
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Contingent Compensation
Contingent compensation may be a discretionary bonus or an amount to be determined by a written formula. Either way, it should meet the same standards of reasonableness and compensatory intent as traditional salary compensation. To determine whether the amount is reasonable, carefully consider the facts and circumstances which existed at the time the bonus was…
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The Multi-Factor Approach
Beginning with Mayson Manufacturing Co. v. Commissioner, 178 F.2d 115 (6th Cir. 1949), the courts have developed various factors to consider in determining whether compensation amounts were reasonable. Some of the key factors are: · The employee’s qualifications, including education and training, · The nature, extent and scope of the employee’s duties, · The amount…
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Using Compensation Comparability Data
We often need to determine reasonable compensation amounts for executives, attorneys, charity managers, trustees, or retirement plan service providers. This is an important process and should not be taken lightly. At first blush, it is tempting to assume that the market establishes reasonableness. Hence, we often use benchmarking, which involves comparing one person’s pay level to…
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