Reasonable Compensation
Reasonable Compensation
Professional judgment and rigorous qualitative and quantitative analysis are critical when selecting a compensation amount. You can rely on Chaffe to provide an opinion of compensation that is reasonable, objective, defensible, and tailored to each circumstance.
Rigorous Analysis, Vast Market Knowledge
The corporate taxpayer bears the burden of proof that compensation is reasonable. Executive compensation is deductible as a business expense only if it is reasonable in amount and based on services actually rendered. The tax consequences associated with unreasonable compensation may be significant.Shareholder compensation issues for closely-held businesses can also arise in the following cases:
- Dissenting shareholder cases
- Separate vs. community property matters
- Litigation involving a minority shareholder
- Section 409A compliance
- Valuing a business
Complex Determinations Require Expert Analysis
Chaffe understands that the determination of reasonable compensation can be a complex issue, particularly when controlling owners have the discretion to set their own compensation or the compensation of family members, and when compensation may be a business’ largest expense.
Business owners and their advisers should consider using a robust analysis by an independent analyst with experience in executive compensation to guide them through these issues.
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