Yes, according to at least one opinion published by the United States Tax Court. In Allen L. Davis, et al v. Commissioner of Internal Revenue, T.C. Memo 2011-286, the Tax Court considered an unusual set of facts. Allen Davis and his two adult sons were shareholders of an extremely profitable S corporation. When Mr. Davis exercised…
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Can Reasonable Compensation for a CEO Include Catchup Pay?
By Stephen D. Kirkland, CPA, CMC, CFF Yes, according to some published Tax Court cases, including Choate Construction Company, T.C. Memo. 1997-495. My report and courtroom testimony highlighted the fact that the founder had worked for minimal pay in the first years of the business. In his published opinion, Judge John Colvin (who later became…
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Does Lack of Dividends Equate to Disguised Dividends?
In analyzing whether a C corporation’s payments to shareholder-employees were compensation or “disguised” dividends, the Internal Revenue Service and courts consider whether dividends were paid by the corporations. The Regulations say it is “likely” that a compensation payment is in fact a dividend distribution when excessive payments correspond to or bear a close relationship to…
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How do Long-Term Incentives affect Executive Compensation Amounts?
Appreciation in a company’s stock value can be one reason that executive compensation amounts appear to be so high. Publicly-traded companies are required by the Securities and Exchange Commission ("SEC") to disclose how much their top executives were paid the prior year. Companies usually publish this data in the proxy that is sent to shareholders soon…
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