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

10 Pages Posted: 23 Oct 2009 Last revised: 3 Dec 2011

See all articles by Aaron Zelinsky

Aaron Zelinsky

University of Maryland Francis Carey School of Law

Date Written: October 22, 2009


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 Classification: G38

Suggested Citation

Zelinsky, Aaron, Taxing Unreasonable Compensation: §162(a)(1) and Managerial Power (October 22, 2009). Yale Law Journal, Vol. 119, p. 637, 2009, Available at SSRN:

Aaron Zelinsky (Contact Author)

University of Maryland Francis Carey School of Law ( email )

500 West Baltimore Street
Baltimore, MD 21201-1786
United States

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