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Unreasonable Compensation Unreasonable compensation is a level of compensation for owner-managers that does not meet the requirements of IRC 162(a) for reasonable compensation. This may be either too low a compensation level or too high, depending upon the form of incorporation. In order for the compensation to be considered as a deductible business expense it must (1) be for services rendered and (2) generally be an amount that like enterprises ordinarily would pay for the services under similar circumstances. There are a series of further factors to consider in determining the similarity of the circumstances. Compensation over the maximum leads to the IRS changing wages to a constructive dividend, an action that creates higher corporate taxes plus interest and penalties. In an underpayment situation, the IRS converts pass-through income to wages and charges FICA and Medicare contributions. RELATED PRODUCTS
Salary AssessorReports "up to the present day" competitive wage, salary, and incentive survey data. Provides salary ranges and median/means for over 6,100 positions in 370 U.S. and Canadian metro areas.Download Product Demo 
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