How the IRS Determines Reasonable Compensation

with Job Aid Commentary by the Original IRS Champion

The IRS internal white paper entitled “Reasonable Compensation Job Aid for IRS Valuation Professionals” dated October 29, 2014 is reviewed, and Michael Gregory provides insights to help you the business appraiser respond to this commentary.

This recently obtained IRS document presents background on this topic area from the perspective of the IRS. This document was written to help IRS professionals that are reviewing reasonable compensation issues. Major elements of this document are presented and Michael Gregory offers his insights as to what this might mean for business valuers reviewing reasonable compensation issues while providing valuations for federal tax purposes.

The Book is Organized into Two Parts

Part One introduces the topic of reasonable compensation to set the framework related to this issue.

Stephen Kirkland worked with Michael Gregory on the review of this updated chapter from "Business Appraisals and the IRS" offering fresh insights from an expert in this field.

Part two contains the IRS Reasonable Compensation Job Aid on the right with commentary by Michael Gregory on the left.

By reading the IRS Reasonable Compensation Job Aid on the right with commentary on the left this leads the reader back to specific commentary from Part One to assist the reader in gaining additional insight on this issue.  

Table of Contents

These are the Table of Contents of the IRS Reasonable Compensation Job Aid

  • Section I: Purpose, Background And Case Coordination
  • Section II: Identifying A Reasonable Compensation Issue
  • Section III: Developing Reasonable Compensation Issues
  • Section IV: Taxpayer Arguments For Reasonable Compensation Issues
  • Section V: Consideration Of Penalties
  • Section VI: Focusing Specifically On Not-For-Profits
Appendices
  • A. Suggested Readings On Reasonable Compensation
  • B. Data Sources For Compensation Issues
  • C. Information Document Requests
  • D. Financial Analysis - Example
  • E. Market Approach - Example
  • F. Income Approach - Example
  • G. Court Cases Relating To Prior Years Under-Compensation
  • H. Court Cases Relating To Multiple Jobs
  • I. Example of a Not-for-Profit Analysis (University Sector)