Case 8-1 - TAX RESEARCH MEMORANDUM Date To From Subject 12...

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TAX RESEARCH MEMORANDUM Date : 12 April 2010 To : Tax Files From : 810828350 Subject : What is considered a “reasonable” amount for salary compensation? Summary of Facts Professor Stephen J. Colbert, DFA, is an 80% shareholder of his consulting business ColbertNation Inc. Stephen’s salary from the consulting business is generally 50% of the earnings. In 2009, ColbertNation realized above average earnings, therefore increasing the value of his salary quite substantially. As the only members of the Board of Directors, Jon Stewart and Stephen Colbert approve any salary decision made for the year including 2009’s $200,000 salary for Dr. Colbert. Issue Is the amount of Professor Stephen J. Colbert’s salary considered reasonable by the IRS? In addition, what are the consequences if it is determined not reasonable? Law and Analysis When considering the amount of compensation, Regs. Sec. 1.162 7(b)(3) 1 states: "It is, in general, just to assume that reasonable and true compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances." Essentially, if someone were to perform the same duties under similar circumstances with
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This note was uploaded on 10/24/2010 for the course ACCTG 321 taught by Professor Will during the Spring '08 term at San Diego State.

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Case 8-1 - TAX RESEARCH MEMORANDUM Date To From Subject 12...

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