Reasonable Compensation

If salary, wages, perquisites or other remuneration is paid from a business or trust, the aggregate compensation will generally have to be “reasonable” in comparison to the services provided and other relevant factors to be respected by the IRS.

In the context of business valuations and divorce the “reasonable compensation” of a spouse, owner or other key person is often estimated and any compensation above that amount adjusted in determining earnings (normalized earnings) for purposes of evaluating the business’ worth, etc.