Case Law Commentary

Elliotts, Inc. v. Commissioner (9th Cir. 1983) organized reasonable compensation analysis into five factor categories courts still use. What each factor requires – and the two details practitioners forget.

Exacto Spring Corp. v. Commissioner replaced factor lists with one question: would an independent investor accept their return after the executive was paid? How the test works and where it fails.

Watson v. United States (8th Cir. 2012) is the leading case on S corporation compensation set too low. How the court used market data – and what it means for owners and CPAs.

Clary Hood, Inc. v. Commissioner is the modern reference point for reasonable compensation disputes. Four lessons from how the Tax Court treated the experts – comparability, catch-up pay, report ownership, and the hired-gun problem.