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Taxing Unreasonable Compensation: §162(a)(1) and Managerial Power

Aaron Zelinsky
Yale Law School



Yale Law Journal, Forthcoming

Abstract:     
Section 162(a)(1) of the Internal Revenue Code, as construed by the IRS, effectively allows publicly traded businesses to deduct an unlimited amount of executive compensation for corporate tax purposes. In contrast, the IRS has consistently used § 162(a)(1) to limit corporate deductions for executive compensation paid by closely held corporations. This Comment proposes that, in light of recent scholarship, the IRS has misapplied § 162(a)(1), since publicly traded corporations may lack the appropriate oversight and incentive infrastructure to set executive compensation reasonably. Therefore, this Comment proposes that the IRS should use § 162(a)(1) to render such compensation nondeductible, just as the Service examines the deductibility of compensation paid by privately held corporations.

Keywords: Executive Compensation, Managerial Power

JEL Classifications: G38

Accepted Paper Series

Date posted: October 23, 2009 ; Last revised: November 06, 2009

Suggested Citation

Zelinsky, Aaron, Taxing Unreasonable Compensation: §162(a)(1) and Managerial Power (October 22, 2009). Yale Law Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1492758


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Contact Information

Aaron Zelinsky (Contact Author)
Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
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