How much owners’ compensation is “reasonable”?

Description

Abstract: The IRS may challenge the reasonableness of compensation a business pays to its owners and other related parties under a variety of situations. This article explains the factors to consider when evaluating compensation paid by C corporations and pass-through entities, including S corporations, partnerships and limited liability companies (LLCs) treated as partnerships for tax purposes. A sidebar highlights IRS internal guidance that provides valuable insight on how IRS examiners are trained to assess what’s reasonable.