7th Circuit Affirms Independent Investor Test When Determining Reasonable Compensation

Business Valuation Update BVLaw
Legal and Court Case Update
November 16, 1999
3495 Wire Springs
332216 Saw Blade and Handtool Manufacturing
federal taxation
reasonable compensation, income tax

Exacto Spring v. Commissioner
T.C. Memo 1998-220, 1998 Tax Ct. Memo LEXIS 221
Federal Court
7th Circuit
United States Court of Appeals


The 7th Circuit reversed the U.S. Tax Court and determined that the independent investor test was the appropriate test for determining whether an executive's compensation was reasonable and, thus, deductible to the corporation under IRC sec. 162.

See Also

Exacto Spring v. Commissioner

At issue is the interpretation of tax law that allows a business to deduct from its income its "ordinary and necessary" business expenses.