Factors in Judging Reasonableness
The Internal Revenue Manual section 4233.27 lists twelve factors to be considered by an agent
on examination in IRC 162 reasonable compensation cases, while various courts have developed
their own lists. The factors the Manual lists are:
1) the nature of the employee\'s duties;
2) the employee\'s background and experience;
3) the employee\'s knowledge of the business;
4) the size of the business;
5) the employee\'s contribution to the profit making;
6) the time devoted by the employee to the business;
7) the economic conditions in general and locally;
8) the character and amount of responsibility of the employee;
9) the time of year when compensation is determined;
10) the relationship of shareholder-officer\'s compensation to stock holdings;
11) whether alleged compensation is in reality, in whole or in part, payment for a business or
assets acquired; and 12) the amount paid by similar size businesses in the same area to equally
qualified employees for similar services. Rather than track the listing in the Manual for IRC 162,
the following discussion focuses on factors discussed by the Service or courts specifically in
exempt organization cases. Where IRC 162 cases illustrate an important point not otherwise
covered by an exempt organization case, they will be discussed. Also, this article groups together
the factors dealing with the employee, the organization and the compensation itself.
B. Factors Relating to the Employee
1. Arm\'s Length Relationship One of the most important factors in evaluating the
reasonableness of compensation is whether the employer and employee negotiated the
compensation at arm\'s length. Negotiations may be viewed either as an indication of
reasonableness or as one part of a three-pronged inurement analysis. Most cases and rulings
simply list arm\'s length negotiations as one factor in judging reasonableness. G.C.M. 39670,
supra, expresses an alternative view that negotiations, reasonableness and whether an
arrangement is simply a device to distribute profits are three equal parts of an inurement analysis.
Under either approach, arm\'s length negotiations are critical. As one commentator has stated,
Virtually all challenges by IRS to the deductibility of compensation have occurred in the context
of salary arrangements between related parties... There does not appear to be any case which
holds that compensation paid in a truly arm\'s length situation was unreasonable...In this
situation, the operation of the normal system of commercial checks and balances is probably
adequate to ensure a proper result so that review by the IRS is generally unnecessary.\" Kafka,
390-2nd T.M., Reasonable Compensation at A-5. However, it is important to note that while lack
of arm\'s length bargaining is an important factor, it does not always create inurement. The Tax
Court considered and rejected the notion that a salary that would be reasonable if paid to an
unrelated third party becomes unreasona.
Divided Tax Court Rules Against IRS in Rent-A-Center Captive CaseBrown Smith Wallace
In January, a long-awaited decision in the court case Rent-A-Center v. Commissioner addressed the deductibility for federal income tax purposes of premium payments made by brother/sister entities to a commonly controlled captive insurance company. Alan Fine, Partner, Insurance Advisory Services, discusses the lessons learned and remaining unanswered questions in the linked Captive Insurance Times article.
Divided Tax Court Rules Against IRS in Rent-A-Center Captive CaseBrown Smith Wallace
In January, a long-awaited decision in the court case Rent-A-Center v. Commissioner addressed the deductibility for federal income tax purposes of premium payments made by brother/sister entities to a commonly controlled captive insurance company. Alan Fine, Partner, Insurance Advisory Services, discusses the lessons learned and remaining unanswered questions in the linked Captive Insurance Times article.
The costs associated with administering an employer-sponsored 401(k) plan have always been an issue that requires great care. Employers may soon find this task a little easier, thanks to some recent court rulings. The focus of the various courts has not been on the actual amount of fees charged, but on the objectivity of the process for determining those fees.
BoyarMiller – Navigating Your Company through Spoliation Claims and Strategie...BoyarMiller
A Penny Saved is a Penny Earned:
Navigating Your Company through Spoliation Claims and Strategies to Maximize Recovering Attorneys’ Fees
presented by:
Chris Hanslik, Craig Dillard & Matt Veech
A penny saved is a penny earned: Navigating your company through spoliation claims and strategies to maximize recovering attorneys' fees. Presented at the Association of Corporate Counsel.
Not-for-Profit Compensation Controversies Continue to Add Fuel to the FireCBIZ, Inc.
Compensation in the not-for profit sector has been a consistent lightning rod for the IRS and other federal governing bodies, as well as for states, for many years.
Recently, shareholder groups have sued companies for inadequate disclosure in the annual proxy. They allege that companies provide insufficient disclosure to determine how to vote on “say on pay.” If a company follows SEC guidelines, why is this not sufficient?
Points to keep in mind when looking for an ATE on a multi claimant commercial...Demi Edmunds
Matthew Williams answers the following question: When looking for ATE on a multi claimant commercial claim, are there additional points to keep in mind?
No reaction because you cant form any kind of i.pdfankurbhargava44
No reaction because you can\'t form any kind of ion intermediate at briged positions
Solution
No reaction because you can\'t form any kind of ion intermediate at briged positions.
Mass of hydrogen is 1 so due to 2 hydrogens , it .pdfankurbhargava44
Mass of hydrogen is 1 so due to 2 hydrogens , it is 2. and mass of oxygen is 16 so
molecular mass of water is 18 units(16+2)
Solution
Mass of hydrogen is 1 so due to 2 hydrogens , it is 2. and mass of oxygen is 16 so
molecular mass of water is 18 units(16+2).
The technique used in this case is FACS or FaCS may refer to Fluore.pdfankurbhargava44
The technique used in this case is FACS or FaCS may refer to: Fluorescence-activated cell
sorting, applied in flow cytometry.
Reagents used to obtain these results are(; (BIORAD):
Antibodies
Reagents; (BIORAD)
Solution
The technique used in this case is FACS or FaCS may refer to: Fluorescence-activated cell
sorting, applied in flow cytometry.
Reagents used to obtain these results are(; (BIORAD):
Antibodies
Reagents; (BIORAD).
The costs associated with administering an employer-sponsored 401(k) plan have always been an issue that requires great care. Employers may soon find this task a little easier, thanks to some recent court rulings. The focus of the various courts has not been on the actual amount of fees charged, but on the objectivity of the process for determining those fees.
BoyarMiller – Navigating Your Company through Spoliation Claims and Strategie...BoyarMiller
A Penny Saved is a Penny Earned:
Navigating Your Company through Spoliation Claims and Strategies to Maximize Recovering Attorneys’ Fees
presented by:
Chris Hanslik, Craig Dillard & Matt Veech
A penny saved is a penny earned: Navigating your company through spoliation claims and strategies to maximize recovering attorneys' fees. Presented at the Association of Corporate Counsel.
Not-for-Profit Compensation Controversies Continue to Add Fuel to the FireCBIZ, Inc.
Compensation in the not-for profit sector has been a consistent lightning rod for the IRS and other federal governing bodies, as well as for states, for many years.
Recently, shareholder groups have sued companies for inadequate disclosure in the annual proxy. They allege that companies provide insufficient disclosure to determine how to vote on “say on pay.” If a company follows SEC guidelines, why is this not sufficient?
Points to keep in mind when looking for an ATE on a multi claimant commercial...Demi Edmunds
Matthew Williams answers the following question: When looking for ATE on a multi claimant commercial claim, are there additional points to keep in mind?
Similar to Factors in Judging ReasonablenessThe Internal Revenue Manual secti.pdf (14)
No reaction because you cant form any kind of i.pdfankurbhargava44
No reaction because you can\'t form any kind of ion intermediate at briged positions
Solution
No reaction because you can\'t form any kind of ion intermediate at briged positions.
Mass of hydrogen is 1 so due to 2 hydrogens , it .pdfankurbhargava44
Mass of hydrogen is 1 so due to 2 hydrogens , it is 2. and mass of oxygen is 16 so
molecular mass of water is 18 units(16+2)
Solution
Mass of hydrogen is 1 so due to 2 hydrogens , it is 2. and mass of oxygen is 16 so
molecular mass of water is 18 units(16+2).
The technique used in this case is FACS or FaCS may refer to Fluore.pdfankurbhargava44
The technique used in this case is FACS or FaCS may refer to: Fluorescence-activated cell
sorting, applied in flow cytometry.
Reagents used to obtain these results are(; (BIORAD):
Antibodies
Reagents; (BIORAD)
Solution
The technique used in this case is FACS or FaCS may refer to: Fluorescence-activated cell
sorting, applied in flow cytometry.
Reagents used to obtain these results are(; (BIORAD):
Antibodies
Reagents; (BIORAD).
The common ion effect is responsible for the reduction in the solubi.pdfankurbhargava44
The common ion effect is responsible for the reduction in the solubility of an ionic precipitate
when a soluble compound combining one of the ions of the precipitate is added to the solution in
equilibrium with the precipitate. It states that if the concentration of any one of the ions is
increased, then, according to Le Chatelier\'s principle, the ions in excess should combine with the
oppositely charged ions. Some of the salt will be precipitated until the ionic product is equal to
the solubility of the product. In simple words, common ion effect is defined as the suppression of
the degree of dissociation of a weak electrolyte containing a common ion.
Many transition metal compounds violate this rule due to the formation of complex ions. For
example, copper(I) chloride is insoluble in water, but it dissolves when chloride ions are added,
such as when hydrochloric acid is added. This is due to the formation of soluble CuCl2 complex
ions.By pulling Ag+ ions out of this equilibrium, the equilibrium must shift to replace them as
best it can. i.e. more AgBr(s) must go into solution. The solubility of a slightly soluble salt
increases when one of its ions can be changed to a soluble complex ion.Adding the ammonia
introduces another equilibrium and we can sum the two equilibrium present.Original
EquilibriumAgBr(s) <=====> Ag+(aq) + Br-(aq) Ksp = [Ag+][Br-]
Solution
The common ion effect is responsible for the reduction in the solubility of an ionic precipitate
when a soluble compound combining one of the ions of the precipitate is added to the solution in
equilibrium with the precipitate. It states that if the concentration of any one of the ions is
increased, then, according to Le Chatelier\'s principle, the ions in excess should combine with the
oppositely charged ions. Some of the salt will be precipitated until the ionic product is equal to
the solubility of the product. In simple words, common ion effect is defined as the suppression of
the degree of dissociation of a weak electrolyte containing a common ion.
Many transition metal compounds violate this rule due to the formation of complex ions. For
example, copper(I) chloride is insoluble in water, but it dissolves when chloride ions are added,
such as when hydrochloric acid is added. This is due to the formation of soluble CuCl2 complex
ions.By pulling Ag+ ions out of this equilibrium, the equilibrium must shift to replace them as
best it can. i.e. more AgBr(s) must go into solution. The solubility of a slightly soluble salt
increases when one of its ions can be changed to a soluble complex ion.Adding the ammonia
introduces another equilibrium and we can sum the two equilibrium present.Original
EquilibriumAgBr(s) <=====> Ag+(aq) + Br-(aq) Ksp = [Ag+][Br-].
The DNA matching is carried out by comparing the DNA sequences of th.pdfankurbhargava44
The DNA matching is carried out by comparing the DNA sequences of the STR loci in these
samples.
STR analysis is one of the major tools employed in forensic sciences. STR regions are highly
polymorphic in nature. STR analysis uses this advantage to distinguish one DNA sample from
another. STR is basically a stretch of DNA (2-13 nucleotides) that is repeated hundreds of times.
This basic repeats differ from one individual to another. Or related individuals may contain
similar repeats compared to unrelated individuals. They use specific primers to amplify the
sequences through PCR and then visualize through electrophoresis.
But ultimately by comparing STR loci, one can discrimate between unrelated individuals.
Solution
The DNA matching is carried out by comparing the DNA sequences of the STR loci in these
samples.
STR analysis is one of the major tools employed in forensic sciences. STR regions are highly
polymorphic in nature. STR analysis uses this advantage to distinguish one DNA sample from
another. STR is basically a stretch of DNA (2-13 nucleotides) that is repeated hundreds of times.
This basic repeats differ from one individual to another. Or related individuals may contain
similar repeats compared to unrelated individuals. They use specific primers to amplify the
sequences through PCR and then visualize through electrophoresis.
But ultimately by comparing STR loci, one can discrimate between unrelated individuals..
Stormwater BMPs for urban useStormwater runoff is the water flowi.pdfankurbhargava44
Stormwater BMPs for urban use:
Stormwater runoff is the water flowing on land from rainfall, snowmelts, as well as flows from
storm drains and natural drains serving industrial, residential, commercial, agricultural and
recreational lands. The stormwater runoff causes problems like flooding, erosion and water
pollution. These negative impacts can be eliminated by adopting the Best Management Practices
(BMPs). BMPs are structural, vegetative or managerial practice used to treat the stormwater in
order to prevent or to reduce the water pollution.
Stormwater runoff from urban areas contains higher concentration of pollutants like metals,
nutrients, oxygen demanding wastes and suspended solids. It also contains pathogenic
microorganisms, oil, and petroleum hydrocarbons, pesticide and variety of synthetic organics.
BMPs can be used for mitigation of urban Nonpoint Source Pollution (NPSP) from urban areas.
Nonpoint Source Pollution (NPSP) cannot be traced back to a single site of discharge as the
stormwater can be polluted by chemical runoff, subsurface flow, deposition from atmosphere,
fugitive discharge from pipelines etc.
The benefits of implementation of BMPs are:
Flood Control: By implementing the BMPs, the large volume of runoff is detained and then
released at a slower rate which thereby reduces or limits the chances of flooding.
Improved Water Quality: Stormwater BMPs help to remove the pollutants from water and
therefore helps to reduce the soil erosion, lower the contaminant loadings and provides cleaner
bottom sediments.
Environmental Amenities: Some BMPs techniques helps to create attractive environmental
features such as wetland habitat or open water areas which ideal for use by waterfowl, marsh
birds and other wildlife. Large wet ponds can also provide scope for recreational activities for
e.g., fishing, swimming or skating. Pond BMPs can help to develop recreational sites for
walking, bird watching or nature hikes.
Both structural and nonstructural BMPs can be effectively used to mitigate the urban NPSP.
Some of the structural BMPs for mitigation of urban NPSP are:
Structural BMPs system can be implemented by moving earth, planting and construction.
Infiltration System:
This system can be used by increasing the infiltration of precipitation in the soil and thereby
reducing the surface runoff and sediment transport. Infiltration basins capture stormwater and
store it until some, or all, of the stormwater filters into the surrounding soil. This system is
effective for removing fine grained pollutants, but course grained pollutants can clog the
infiltration basins.
Detention System:
This system slows down the rate of runoff and therefore helps to reduce the transport of
pollutants and encourages the settling of suspended solids.
Retention System:
This system includes a lined or unlined wetponds which retains stormwater to hold (6months)
storm events.
Porous Pavement:
Use of porous pavement such as interlocking tiles or bricks, allows st.
SolutionIt is given that time slots are random and independent. S.pdfankurbhargava44
Solution
:
It is given that time slots are random and independent. So
Joint pmf= P(Xam=a, Xam=a,= P(Xam=a) . P(Xpm=b)
In each and every case, probability is given to be 1/4. So we\'l get 1/16 as probability for each
and every case..
Solution 1United states treasury bonds pays semi annual interest .pdfankurbhargava44
Solution
1:
United states treasury bonds pays semi annual interest on face value of bond.
Rate of interest for UST 2.75 due 11/15/47 = 2.75%
Par value = $100
Periodic coupon payment = p * r* t = 100*2.75%*6/12 = $1.375.
since you have 2 mols of O3 going to 3O2 you divide your delta H by .pdfankurbhargava44
since you have 2 mols of O3 going to 3O2 you divide your delta H by 2 to get -142.3 kJ/mol
Solution
since you have 2 mols of O3 going to 3O2 you divide your delta H by 2 to get -142.3 kJ/mol.
Rules generally followed are1. Using existing terminology wheneve.pdfankurbhargava44
Rules generally followed are:
1. Using existing terminology whenever possible.
2. Name everything in the same language as a set of objects.
3. It can be upto certainl limit of charecters say 32 or 64 like that.
4. It must be a combinaiton of any of letters, numbers, spaces, special characters(except period),
exclemaiton, an accent grave, brackets.
5. It should not begin with space.
Benifits of naming convention:
1. It is very easy to tell from the naming convention that what does that variable contains.
2. Using prefixes can make it easier to group your tables and all.
3. It will be useful when we are using tools like automated code generating tools.
Prefix Tags: Prefix tags are used to indicate the type of objects and database development fields.
A prefix appears in lowercase adn is used to indicate additional information, such as the scope of
avariable. Th tag aslo appears in lowercase. It is a short set of characters that indicate the type of
an object.
Some of the examples are app(application), chk(checkBox), cbo(combobox),
cmd(commandbutton) etc.
Solution
Rules generally followed are:
1. Using existing terminology whenever possible.
2. Name everything in the same language as a set of objects.
3. It can be upto certainl limit of charecters say 32 or 64 like that.
4. It must be a combinaiton of any of letters, numbers, spaces, special characters(except period),
exclemaiton, an accent grave, brackets.
5. It should not begin with space.
Benifits of naming convention:
1. It is very easy to tell from the naming convention that what does that variable contains.
2. Using prefixes can make it easier to group your tables and all.
3. It will be useful when we are using tools like automated code generating tools.
Prefix Tags: Prefix tags are used to indicate the type of objects and database development fields.
A prefix appears in lowercase adn is used to indicate additional information, such as the scope of
avariable. Th tag aslo appears in lowercase. It is a short set of characters that indicate the type of
an object.
Some of the examples are app(application), chk(checkBox), cbo(combobox),
cmd(commandbutton) etc..
Please find my code.import java.util.Arrays;import java.util.Ran.pdfankurbhargava44
Please find my code.
import java.util.Arrays;
import java.util.Random;
public class Search {
// function for Linear Search
public static int linerSearch(int[] arr, int key){
int size = arr.length;
for(int i=0;i
Solution
Please find my code.
import java.util.Arrays;
import java.util.Random;
public class Search {
// function for Linear Search
public static int linerSearch(int[] arr, int key){
int size = arr.length;
for(int i=0;i.
only similarity- Mean, median and mode are all different terms of ce.pdfankurbhargava44
only similarity- Mean, median and mode are all different terms of central tendency or the
average but they are all different from each other
Solution
only similarity- Mean, median and mode are all different terms of central tendency or the
average but they are all different from each other.
Instructions for Submissions thorugh G- Classroom.pptxJheel Barad
This presentation provides a briefing on how to upload submissions and documents in Google Classroom. It was prepared as part of an orientation for new Sainik School in-service teacher trainees. As a training officer, my goal is to ensure that you are comfortable and proficient with this essential tool for managing assignments and fostering student engagement.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
Palestine last event orientationfvgnh .pptxRaedMohamed3
An EFL lesson about the current events in Palestine. It is intended to be for intermediate students who wish to increase their listening skills through a short lesson in power point.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
For more information, visit-www.vavaclasses.com
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
Model Attribute Check Company Auto PropertyCeline George
In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
Honest Reviews of Tim Han LMA Course Program.pptxtimhan337
Personal development courses are widely available today, with each one promising life-changing outcomes. Tim Han’s Life Mastery Achievers (LMA) Course has drawn a lot of interest. In addition to offering my frank assessment of Success Insider’s LMA Course, this piece examines the course’s effects via a variety of Tim Han LMA course reviews and Success Insider comments.
Factors in Judging ReasonablenessThe Internal Revenue Manual secti.pdf
1. Factors in Judging Reasonableness
The Internal Revenue Manual section 4233.27 lists twelve factors to be considered by an agent
on examination in IRC 162 reasonable compensation cases, while various courts have developed
their own lists. The factors the Manual lists are:
1) the nature of the employee's duties;
2) the employee's background and experience;
3) the employee's knowledge of the business;
4) the size of the business;
5) the employee's contribution to the profit making;
6) the time devoted by the employee to the business;
7) the economic conditions in general and locally;
8) the character and amount of responsibility of the employee;
9) the time of year when compensation is determined;
10) the relationship of shareholder-officer's compensation to stock holdings;
11) whether alleged compensation is in reality, in whole or in part, payment for a business or
assets acquired; and 12) the amount paid by similar size businesses in the same area to equally
qualified employees for similar services. Rather than track the listing in the Manual for IRC 162,
the following discussion focuses on factors discussed by the Service or courts specifically in
exempt organization cases. Where IRC 162 cases illustrate an important point not otherwise
covered by an exempt organization case, they will be discussed. Also, this article groups together
the factors dealing with the employee, the organization and the compensation itself.
B. Factors Relating to the Employee
1. Arm's Length Relationship One of the most important factors in evaluating the
reasonableness of compensation is whether the employer and employee negotiated the
compensation at arm's length. Negotiations may be viewed either as an indication of
reasonableness or as one part of a three-pronged inurement analysis. Most cases and rulings
simply list arm's length negotiations as one factor in judging reasonableness. G.C.M. 39670,
supra, expresses an alternative view that negotiations, reasonableness and whether an
arrangement is simply a device to distribute profits are three equal parts of an inurement analysis.
Under either approach, arm's length negotiations are critical. As one commentator has stated,
Virtually all challenges by IRS to the deductibility of compensation have occurred in the context
of salary arrangements between related parties... There does not appear to be any case which
holds that compensation paid in a truly arm's length situation was unreasonable...In this
situation, the operation of the normal system of commercial checks and balances is probably
adequate to ensure a proper result so that review by the IRS is generally unnecessary." Kafka,
2. 390-2nd T.M., Reasonable Compensation at A-5. However, it is important to note that while lack
of arm's length bargaining is an important factor, it does not always create inurement. The Tax
Court considered and rejected the notion that a salary that would be reasonable if paid to an
unrelated third party becomes unreasonable if paid to a person having a personal and private
interest in the organization. In World Family Corporation v. Commissioner, supra at 969, the
court stated that, "Although in some circumstances such a finding may be warranted, it is clear
that payment to an interested individual does not make a commission unreasonable as a matter of
law." In The Church of the Visible Intelligence that Governs the Universe v. U.S., 4 Cl.Ct. 55
(Ct.Cl. 1983), the Service argued that because the organization's bylaws allowed its founder to
completely dominate the organization, there was an inference that the organization was operated
for his benefit. The Claims Court agreed that this structure "raise[d] concern about the potential
for abuse unless allayed by other information in the record." Supra. at 62. However, the court
found no evidence to support the inference of improper private benefit or inurement because the
founder had contributed money without receiving any benefit in return. He did not actually
exercise his totalitarian powers.
2. Control By a Family or Founder Domination by one family is often a factor in cases involving
excessive compensation. For example, the court in Bubbling Well Church, supra at 534-5 noted
that complete domination of a church by its founders and their son provided "an obvious
opportunity for abuse of the claimed tax-exempt status." There, the parents and son were all
employed by the church and they served as the only directors. In Mabee, supra, the founder and
sole contributor to the foundation served as its president and received a $100,000 salary, which
the court found to be unreasonable. Similarly, the dominant figure in the Church of Scientology
and his wife were two of the three members of the board of trustees. The court cited this fact in
its finding of inurement in Founding Church of Scientology v. U.S., supra at 1201. However,
domination by one person or family, while it raises concerns about potential abuse, does not
necessarily prove it. In The Church of the Visible Intelligence that Governs the Universe v. U.S.,
supra, the Service had argued that the organization's complete control by its founder and head
should disqualify it from exemption. The court rejected speculation about what the organization
might do in the future in light of evidence that no abuses had occurred as of the trial, the
organization's articles prohibited inurement, and it represented that the salaries paid to any
workers it might hire in the future would be reasonable. The court refused to speculate about
whether future pay limits would be reasonable.
3. Availability of Comparable Services From a Third Party If the employer could have obtained
comparable services at a lower rate from someone other than the employee in question, the rate
paid the employee may be unreasonable. This factor often is closely related to a lack of arm's
length dealing. In Mabee, supra at 616, the Court of Appeals stated, "We think it doubtful
3. whether comparable services would have cost as much had they been acquired in an arm's
length transaction from an outside source." A district court applied the same type of analysis to
deny exemption to an organization that paid its two part-time ministers excessive salaries
4. Nature of the Employee's Duties The employee's duties are an important factor in
reasonableness. If the employee performs highly specialized and skilled tasks, has responsibility
for a large volume of work, or supervises other employees, he or she may command a higher
salary. For example, in Rev. Rul. 69-383, supra, concerning a hospital radiologist, the Service
compared the radiologist's compensation with amounts received by other radiologists with
similar responsibilities and handling a comparable patient volume at other hospitals.
5. Employee's Background and Experience If an employee is particularly well-qualified for a
position because of relevant prior experience, education, or proven expertise in the area, a higher
salary might be warranted than would otherwise be the case. In Home Oil Mill, supra, a federal
district court upheld a charitable trust's payment of $15,000 per year in salary to the chair of the
trustees. The will creating the trust named the testator's sister as the chair. The Service had
argued that the payment was merely a stipend for the testator's sister, rather than payment for
services. In finding the payment reasonable, the court emphasized that the testator had carefully
instructed the trustee regarding the character, extent, problems and policies of the businesses
included in the trust corpus, and had explained his charitable plans to her. She therefore had the
necessary background to carry out his specific wishes. Also, the will specified that if the sister
needed to call on the other trustees for services, their compensation was to be taken out of the
$15,000 total for trustee compensation. Finally, the court found that $15,000 was a reasonable
amount of compensation to pay anyone "...for a discharge of the duties and responsibilities
inherent in the actual management of an estate of this size and character." Id. at 640.
6. Employee's Salary History Although this factor does not appear to have been discussed in an
exempt organization compensation case, it is a common theme in IRC 162 cases. For example, in
Lefkowitz v. Commissioner, 46 T.C.M. (CCH) 485, 490-91 (1983), the court noted that the
employee's salary increased substantially over salaries in his previous positions after he became
the sole shareholder of the corporation, indicating ___________________ that his salary
reflected his new influence rather than any new duties or capabilities. See also, Pacific Grains,
Inc. v. Commissioner, 399 F.2d 603,607 (9th Cir. 1968); Kipnis v. Commissioner, 44 T.C.M.
(CCH) 849 (1982). However, where an employee has received inadequate compensation in
previous years, as could well be the case with an employee who has worked for taxexempt (and
historically low-paying) organizations, a large increase over salaries received in previous
positions may be reasonable. E.g., Medina v. Commissioner, 46 T.C.M. (CCH) 76 (1983). The
argument was rejected by a court due to a lack of evidence in one exempt organization case,
Northern Illinois College of Optometry v. Commissioner, 2 TCM (CCH) 664 (1943), which
4. involved a college of optometry run by one family. The salaries of all the family members
combined rose from $25,850 in 1935 to $125,000 in 1938. The organization argued that the
increase in salaries was due to its desire to increase the salaries of employees who had been
underpaid over some time. The court stated that there was nothing in the record to show the
employees had been underpaid.
7. Employee's Contribution to the Organization's Success Exempt organizations have not
traditionally evaluated their employees on the basis of the "bottom line" of financial success as
do for-profit companies. However, when an organization is challenged for paying large salaries,
one of the major arguments it may make is that the employee helps the organization raise a lot of
money, or contributes to its success in some other important way.1 The Service tends to focus on
the employee's contribution to the organization's accomplishment of its exempt purposes. In
G.C.M. 39498 (April 24, 1986), the Office of Chief Counsel emphasized the need to evaluate the
worth of a particular physician to a hospital to justify offering a particular package of recruitment
incentives to that physician. The incentives cannot be justified on the basis of a general need for
qualified physicians; according to the G.C.M., the public benefit of the incentives must be
evaluated for each physician.
8. Time Devoted to Job Where an employee has more than one job or works part-time for an
organization, the salary paid should reflect a decreased workload
Solution
Factors in Judging Reasonableness
The Internal Revenue Manual section 4233.27 lists twelve factors to be considered by an agent
on examination in IRC 162 reasonable compensation cases, while various courts have developed
their own lists. The factors the Manual lists are:
1) the nature of the employee's duties;
2) the employee's background and experience;
3) the employee's knowledge of the business;
4) the size of the business;
5) the employee's contribution to the profit making;
6) the time devoted by the employee to the business;
7) the economic conditions in general and locally;
8) the character and amount of responsibility of the employee;
9) the time of year when compensation is determined;
10) the relationship of shareholder-officer's compensation to stock holdings;
11) whether alleged compensation is in reality, in whole or in part, payment for a business or
5. assets acquired; and 12) the amount paid by similar size businesses in the same area to equally
qualified employees for similar services. Rather than track the listing in the Manual for IRC 162,
the following discussion focuses on factors discussed by the Service or courts specifically in
exempt organization cases. Where IRC 162 cases illustrate an important point not otherwise
covered by an exempt organization case, they will be discussed. Also, this article groups together
the factors dealing with the employee, the organization and the compensation itself.
B. Factors Relating to the Employee
1. Arm's Length Relationship One of the most important factors in evaluating the
reasonableness of compensation is whether the employer and employee negotiated the
compensation at arm's length. Negotiations may be viewed either as an indication of
reasonableness or as one part of a three-pronged inurement analysis. Most cases and rulings
simply list arm's length negotiations as one factor in judging reasonableness. G.C.M. 39670,
supra, expresses an alternative view that negotiations, reasonableness and whether an
arrangement is simply a device to distribute profits are three equal parts of an inurement analysis.
Under either approach, arm's length negotiations are critical. As one commentator has stated,
Virtually all challenges by IRS to the deductibility of compensation have occurred in the context
of salary arrangements between related parties... There does not appear to be any case which
holds that compensation paid in a truly arm's length situation was unreasonable...In this
situation, the operation of the normal system of commercial checks and balances is probably
adequate to ensure a proper result so that review by the IRS is generally unnecessary." Kafka,
390-2nd T.M., Reasonable Compensation at A-5. However, it is important to note that while lack
of arm's length bargaining is an important factor, it does not always create inurement. The Tax
Court considered and rejected the notion that a salary that would be reasonable if paid to an
unrelated third party becomes unreasonable if paid to a person having a personal and private
interest in the organization. In World Family Corporation v. Commissioner, supra at 969, the
court stated that, "Although in some circumstances such a finding may be warranted, it is clear
that payment to an interested individual does not make a commission unreasonable as a matter of
law." In The Church of the Visible Intelligence that Governs the Universe v. U.S., 4 Cl.Ct. 55
(Ct.Cl. 1983), the Service argued that because the organization's bylaws allowed its founder to
completely dominate the organization, there was an inference that the organization was operated
for his benefit. The Claims Court agreed that this structure "raise[d] concern about the potential
for abuse unless allayed by other information in the record." Supra. at 62. However, the court
found no evidence to support the inference of improper private benefit or inurement because the
founder had contributed money without receiving any benefit in return. He did not actually
exercise his totalitarian powers.
2. Control By a Family or Founder Domination by one family is often a factor in cases involving
6. excessive compensation. For example, the court in Bubbling Well Church, supra at 534-5 noted
that complete domination of a church by its founders and their son provided "an obvious
opportunity for abuse of the claimed tax-exempt status." There, the parents and son were all
employed by the church and they served as the only directors. In Mabee, supra, the founder and
sole contributor to the foundation served as its president and received a $100,000 salary, which
the court found to be unreasonable. Similarly, the dominant figure in the Church of Scientology
and his wife were two of the three members of the board of trustees. The court cited this fact in
its finding of inurement in Founding Church of Scientology v. U.S., supra at 1201. However,
domination by one person or family, while it raises concerns about potential abuse, does not
necessarily prove it. In The Church of the Visible Intelligence that Governs the Universe v. U.S.,
supra, the Service had argued that the organization's complete control by its founder and head
should disqualify it from exemption. The court rejected speculation about what the organization
might do in the future in light of evidence that no abuses had occurred as of the trial, the
organization's articles prohibited inurement, and it represented that the salaries paid to any
workers it might hire in the future would be reasonable. The court refused to speculate about
whether future pay limits would be reasonable.
3. Availability of Comparable Services From a Third Party If the employer could have obtained
comparable services at a lower rate from someone other than the employee in question, the rate
paid the employee may be unreasonable. This factor often is closely related to a lack of arm's
length dealing. In Mabee, supra at 616, the Court of Appeals stated, "We think it doubtful
whether comparable services would have cost as much had they been acquired in an arm's
length transaction from an outside source." A district court applied the same type of analysis to
deny exemption to an organization that paid its two part-time ministers excessive salaries
4. Nature of the Employee's Duties The employee's duties are an important factor in
reasonableness. If the employee performs highly specialized and skilled tasks, has responsibility
for a large volume of work, or supervises other employees, he or she may command a higher
salary. For example, in Rev. Rul. 69-383, supra, concerning a hospital radiologist, the Service
compared the radiologist's compensation with amounts received by other radiologists with
similar responsibilities and handling a comparable patient volume at other hospitals.
5. Employee's Background and Experience If an employee is particularly well-qualified for a
position because of relevant prior experience, education, or proven expertise in the area, a higher
salary might be warranted than would otherwise be the case. In Home Oil Mill, supra, a federal
district court upheld a charitable trust's payment of $15,000 per year in salary to the chair of the
trustees. The will creating the trust named the testator's sister as the chair. The Service had
argued that the payment was merely a stipend for the testator's sister, rather than payment for
services. In finding the payment reasonable, the court emphasized that the testator had carefully
7. instructed the trustee regarding the character, extent, problems and policies of the businesses
included in the trust corpus, and had explained his charitable plans to her. She therefore had the
necessary background to carry out his specific wishes. Also, the will specified that if the sister
needed to call on the other trustees for services, their compensation was to be taken out of the
$15,000 total for trustee compensation. Finally, the court found that $15,000 was a reasonable
amount of compensation to pay anyone "...for a discharge of the duties and responsibilities
inherent in the actual management of an estate of this size and character." Id. at 640.
6. Employee's Salary History Although this factor does not appear to have been discussed in an
exempt organization compensation case, it is a common theme in IRC 162 cases. For example, in
Lefkowitz v. Commissioner, 46 T.C.M. (CCH) 485, 490-91 (1983), the court noted that the
employee's salary increased substantially over salaries in his previous positions after he became
the sole shareholder of the corporation, indicating ___________________ that his salary
reflected his new influence rather than any new duties or capabilities. See also, Pacific Grains,
Inc. v. Commissioner, 399 F.2d 603,607 (9th Cir. 1968); Kipnis v. Commissioner, 44 T.C.M.
(CCH) 849 (1982). However, where an employee has received inadequate compensation in
previous years, as could well be the case with an employee who has worked for taxexempt (and
historically low-paying) organizations, a large increase over salaries received in previous
positions may be reasonable. E.g., Medina v. Commissioner, 46 T.C.M. (CCH) 76 (1983). The
argument was rejected by a court due to a lack of evidence in one exempt organization case,
Northern Illinois College of Optometry v. Commissioner, 2 TCM (CCH) 664 (1943), which
involved a college of optometry run by one family. The salaries of all the family members
combined rose from $25,850 in 1935 to $125,000 in 1938. The organization argued that the
increase in salaries was due to its desire to increase the salaries of employees who had been
underpaid over some time. The court stated that there was nothing in the record to show the
employees had been underpaid.
7. Employee's Contribution to the Organization's Success Exempt organizations have not
traditionally evaluated their employees on the basis of the "bottom line" of financial success as
do for-profit companies. However, when an organization is challenged for paying large salaries,
one of the major arguments it may make is that the employee helps the organization raise a lot of
money, or contributes to its success in some other important way.1 The Service tends to focus on
the employee's contribution to the organization's accomplishment of its exempt purposes. In
G.C.M. 39498 (April 24, 1986), the Office of Chief Counsel emphasized the need to evaluate the
worth of a particular physician to a hospital to justify offering a particular package of recruitment
incentives to that physician. The incentives cannot be justified on the basis of a general need for
qualified physicians; according to the G.C.M., the public benefit of the incentives must be
evaluated for each physician.
8. 8. Time Devoted to Job Where an employee has more than one job or works part-time for an
organization, the salary paid should reflect a decreased workload