Reasonable Compensation in the C & S Corporation

In this course, Vern reviews what the IRS means by “reasonable compensation” for both the C and the S corporation.

Highlights of this Chapter:

·         Discussing, in-depth, the reasonable compensation issue as it applies to both C corporations and S corporations, including an extensive discussion on information needed for the S corporation reasonable compensation audit.

·         Reviewing the factors used by the courts to determine reasonable compensation in all corporations.

·         Simplifying the determination of reasonable compensation by using the independent investor test.

·         Discovering where to find comparable salaries on the internet.

·         Examining the IRS’s new inadequate compensation project and how it impacts all S corporations.

·         Learning the applicable codes and regulations that determine reasonable compensation.

·         Using the five Elliot’s standards to successfully defend S corporation reasonable compensation.

·         Learning the 41 factors presently being asked by the IRS auditor in S corporation reasonable compensation audits.

Learning Objectives:

·         Identify the Elliotts standards, often used in determining the reasonableness of compensation in C & S corporations; which was the only one of the five standards used in the Exacto Springs Corp. v. Comm. case to determine the reasonableness of compensation subject to FICA and FUTA taxes; and which Elliotts factors will often not help determine if compensation is reasonable in an S corporation.

·         Identify the standards established by the courts, often used in determining the reasonableness of compensation.

·         Cite the finding of the court in the E.J. Harrison & Sons v. Comm. case, in regards to the reasonableness of compensation paid to an 80-year old controlling stockholder who was also the chairperson and the president of the family-owned business.

·         Determine what type of compensation is subject to FICA and FUTA taxation.

·         Recall why the IRS want S corporations to pay higher wages to their officers/shareholders rather than dividends.

·         Recognize why an S corporation is sometimes called a tax shelter.

·         Specify what the IRS expects to be paid when a shareholder-employee of an S corporation provides services to the S corporation.

·         Stipulate the results when the IRS recharacterizes dividends as wages, as it did in Bramlette Building Corp. v. Comm.

·         Identify the new project created by the IRS involving S corporation reasonable compensation.

·         Recognize the amount of salary claimed on the S corporation return that was deemed unreasonable when analyzing S corporation court cases in the last decade.

·         Identify the legal positions used by the court when determining if compensation is reasonable.

·         Ascertain whether or not profit produced by employees can be part of an owner’s compensation.

·         Indicate the source or sources most commonly used by both taxpayers and the IRS to help determine comparable salaries in similar companies.

·         Recall what information is commonly used by the IRS auditor to help her or him determine if compensation is reasonable, and which information is not.

·         Cite specific complaints lodged against IRS audits of S corporation reasonable wages, in a recent Treasury report.

Prerequisites: A basic understanding of tax preparation.

Program Level: Update

Program Prerequisites

In order to get the most out of Vern's Federal Tax Update courses, you should have a basic understanding of tax preparation.

Program Level & Field of Study

Vern's courses are all update courses tailored to the CPA, Enrolled Agent, tax lawyer or real estate professional who requires on-going education in the field of taxation. Update courses are geared toward participants with a background in the subject area who desire to keep abreast of current changes and developments within that subject area.

Advance Preparation

No advance preparation is required for any of the following courses. We simply recommend you save and/or print out the course manual to follow along with during the online course, and to use for future reference. In order to download, click "Course Manual" under Course Menu on the right side of your screen. When the document appears on your screen, go to File, then Save and/or Print. The manual is yours to keep! After saving or printing, simply close the screen to return to your "Course Overview" page.

Instructional Method

Our self-study program materials will be delivered to you via Vern's innovative online courses. We have created an online learning system for you that utilizes a “three-pane environment”: (1) streaming video in upper-left corner with (2) synchronized PowerPoint slides in upper-right corner, and (3) a web-browser pointing to the course manual and important websites in the bottom half of the screen. We believe that the versatility and usability of this “three-pane environment” offers a superior education platform, possibly even trumping the live education experience!

CPE Credit Hours

Credit Hours are based, in accordance with the National Association of State Boards of Accountancy's (NASBA's) Standards for Continuing Professional Education (CPE) Programs, on a 50-minute hour. Upon successful completion of the exam (70% or higher), you will be presented with a printable Certificate of Completion detailing the Course Name and earned Credit Hours.

Program Registration & Duration

Simply click the “Add to Cart” button following the course description and, once you complete the order form, you will be asked to create a username and password good for one year from the date of purchase. You can change your password at any time. You will have one year from date of purchase to review the course(s) you purchase, and take the final exam. Once you pass the exam, you will have completed the course.

Cost of Program

Course cost is $19.95 per CPE credit hour.