IRS Job Aid
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Is the IRS Job Aid on Reasonable Compensation Still Relevant?
- July 1, 2022
- Posted by: Paul Hamann
- Category: Blog
By Michael Gregory, ASA, CVA, NSA, MBA, Qualified Mediator with the Minnesota Supreme Court
Our guest contributor this month is Michael Gregory. Former IRS Territory Manager and key architect of the IRS Job Aid on Reasonable Compensation shares his wisdom on how the Job Aid has stood the test of time.
IRS valuers identified reasonable compensation as one of the top issues for audit. Differences of opinion by valuers in the private sector and IRS valuers could lead to conflict and disputes on examination, leading to Appeals, and potentially to litigation. This commentary defines reasonable compensation, introduces the IRS Job Aid and Appendix, provides links to some recent IRS papers related to reasonable compensation, introduces how various levels at the IRS look at the issue, provides links to relevant court cases and key factors for consideration from those court cases, and provides a source for contemporary commentary on this topic.
What is reasonable compensation and how is it determined? (more…)
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How the IRS Determines Reasonable Compensation using the IRS Job Aid
- June 1, 2021
- Posted by: Paul Hamann
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
Over the last decade, the IRS has steadily and methodically tackled the compliance hassle that is reasonable compensation. According to an exhaustive 2009 GAO Report, S Corps were under-reporting shareholder compensation by more than $23 billion (for tax years 2003-2004) (Ruh-Roh Reorge!)
A few years later the IRS put together a game plan for its staff. This internal “Job Aid” sets out when and how penalties should be assessed and details three approaches for determining reasonable compensation. It also comes with a warning: “This Job Aid is not an official pronouncement of law…” In sports lingo, the courts are still going to referee, but at least now we understand the rules of the game. We’re no longer playing Calvinball, making it up as we go along (shout out to you Calvin & Hobbes fans!) and that was a huge win for tax preparers and taxpayers.
With the likelihood of increased audit attention on S Corps (more on this next month), moving your approach from myths or guessing to employing a fact-based strategy (as outlined in the IRS Job Aid) will greatly reduce the risk for the preparer (Are You at Risk for Preparer Penalties?) and S Corp that may be relying on myths such as “Rules of Thumb” or “Safe Harbors”.
The three approaches discussed in the Job Aid are: (more…)
