The recently released IRS job aid on determining reasonable compensation provides an “insightful view” on dealing with this topic, Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos) tells BVWire. However, he feels there’s a bit of a disconnect in approaching reasonable compensation from a valuation perspective, as it mentions the three approaches to value in determining reasonable compensation. “I suppose one could argue that you’re actually ‘valuing’ the worth of a person’s services,” he says.

Novel approach: “The job aid covers the market approach, which is certainly appropriate,” says Yeanoplos. “But I thought the application of the cost approach, namely, breaking down a person’s various duties and assembling a ‘many hats’ compensation amount, is innovative,” he says, pointing out that it’s an approach that he and Ronald Seigneur (Seigneur Gustafson) have been espousing for years. “It’s a helpful step in the right direction as it provides a comprehensive list of factors to consider. I’d like to see a more systematic framework for determining reasonable compensation.”

Yeanoplos and Seigneur are the authors of Reasonable Compensation: Application and Analysis for Appraisal, Tax and Management Purposes, which is published by BVR. The IRS lists the book in the job aid in an appendix on suggested readings. The IRS job aid is available from BVR as a free download.

Extra:  Don’t miss Michael Gregory’s presentation and commentary on the IRS job aid on determining reasonable compensation (August 4). Click here for more information.