Challenging and Defending Compensation and Use of the Independent Investor Test C corporations and S corporations should pay shareholder/executive compensation based on the fair market value of the executive services rendered—or risk being audited and possibly penalized by the Internal Revenue Service. Forensic analysts can help companies determine reasonable shareholder/executive compensation using free or fee-based compensation data, with consideration of statutory authority and judicial precedent. This discussion (1) summarizes the federal income tax statutes and judicial precedents related to shareholder/executive compensation, (2) provides a list of frequently relied upon executive compensation data sources, and (3) reviews important issues presented in…
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Transaction Structure Considerations on Target Company Value Valuation analysts do not have to be investment bankers to value an M&A candidate, but they do need to understand taxable and non-taxable stock acquisitions. This discussion summarizes some of the tax benefits—and some of the tax complexities—associated with a taxable stock purchase deal structure. Although the analyst is not expected to be the transaction income tax advisor, the analyst opining on the deal price fairness to any of the deal participants should be generally aware of these transaction structure considerations.