The IRS turns a skeptical eye toward what it deems "unreasonable compensation" paid to C corp owner-executives. The taxman can decide your salary is too large and label part of it as a nondeductible dividend.

The IRS last month announced a "corporate auditing initiative" to scrutinize executive compensation packages. Reason: It pointed to recent accounting scandals and stats showing that CEO salaries jumped 442 percent in the past 20 years.

 

The crackdown, aimed at mid-to-large size companies, focuses on deferred compensation, stock-based pay, split-dollar life insurance, fringe benefits and family limited partnerships (see above). But small companies, also under increased scrutiny, should take this opportunity to review compensation and stay on the right side of the fence.

Free E-visory: Research Recommendations subscribers can obtain a free, three-page report on ways to avoid such IRS scrutiny, Justify Compensation Write-Offs: 6 Wise Moves, at www.research-recs.com/extra.

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