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Three nationally known experts will explain how to determine reasonable compensation amounts. The principal author of the Job Aid, Mike Gregory, will explain the “IRS Job Aid on Reasonable Compensation” and share case studies with many tips and traps. One of the foremost national experts on reasonable compensation, Stephen Kirkland, will share insights and sources to help determine reasonable compensation for your clients. Paul Hamann will show how easy it is to use RCReports to develop reasonable compensation amounts for the IRS, business valuations, and other uses. These reports have been extremely successful proactively when used by business valuers in the preparation of a report for tax filing purposes. They have also been used to resolve negotiated issues with the IRS retroactively when compensation has been raised on audit. This extended four-hour session will provide what you need to know to address reasonable compensation for valuations, the IRS, and other purposes.
Program Agenda
What makes owner pay one of the most interesting topics in business valuation?
Tips to get started
Three approaches
Market
Cost
Income
Gathering the facts
Questions for compensations
The Factors - 9 examples
Goodwill - professional or enterprise?
Comparability data- deep dive
Other sources of compensation data
Arm’s length?
Catch-up pay
Employee benefits
Personal guaranty of corporate debts
Collateral damage
Case study of a custom home builder
In-depth analysis of the owner using the market and income approaches
In-depth analysis of related parties (owner’s gown children) using the cost and market approaches
When to apply professional judgment: Adjusting compatibility data
Explore sources of data, defensibility and reliability
IRS Reasonable Compensation Job Aid
Suggested readings by the IRS
IRS Reasonable Compensation Job Aid- deep dive
Section I: Purpose, Background and Case Coordination
Section II: Identifying a Reasonable Compensation Issue
Section IV: Taxpayer Arguments for Reasonable Compensation Issues
Section V: Consideration of Penalties
Section VI: Focusing Specifically on Not-For-Profits
Beware IRS and penalties on appraisers
Who decides on penalties on appraisers at the IRS
Example on an estate valuation
When is it an issue with the IRS?
What is compensation?
Fringe benefits, bonuses and incentives
Market, income and cost approach to reasonable compensation
Key indicators for market approach
How to begin finding information
Review of information
Sources of information
Income approach
Cost approach
Reconciliation
Five common concerns
Additional thoughts on loans
Exempt organizations
Example highlights
Summary
Important take away information
Learning Objectives
Learn how the IRS and Tax Court approach reasonable compensation
Understand how to avoid triggering an audit and how to respond when compensation amounts are challenged
Know where to find and how to sort compensation comparability data
Learn how to determine reasonable compensation from national experts in the field
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