Tax Court Finds Compensation Paid to Shareholder-Employees Reasonable

By Julia Thomas | July 28, 2016

In Johnson, Inc.,[1] the Tax Court held that the amounts paid to the shareholder-employees of a C corporation constituted reasonable compensation deductible under Section 162 and that amounts paid by the taxpayer-corporation to an entity controlled by two of its shareholders was deductible as an ordinary and necessary business expense under Section 162. Facts of…

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Compensation to Law Firm Shareholder-Employees Disallowed by Tax Court

By Julia Thomas | March 17, 2016

In Brinks,[1] the Tax Court once again applied the independent investor test to recharacterize compensation paid by a professional corporation, a law firm, to its shareholder-employees as nondeductible dividend distributions, and held the corporation liable for accuracy-related penalties for mischaracterizing the dividends as deductible compensation. This case should serve as a warning for many mid-size…

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