Reasonable Compensation

26 Pages Posted: 23 Jan 2001

See all articles by Edward A. Zelinsky

Edward A. Zelinsky

Yeshiva University - Benjamin N. Cardozo School of Law


The doctrine of reasonable compensation is an anachronism which Congress should repeal. The doctrine is today incoherent as a matter of policy and unfair as a matter of practice. While the rule that corporations can only deduct reasonable compensation may have made sense in an earlier age confident about the propriety of double taxing corporate earnings, that rule has now been overtaken by intellectual and practical developments: the current federal policy that closely-held business income need not be taxed twice; broader intellectual skepticism about the propriety of double taxation even as to publicly-traded corporations; the emergence of an economy in which payments to those controlling publicly-held corporations have reached levels previously unimagined and in which significant dividends are increasingly rare. At its most basic, the reasonable compensation doctrine has become little more than a selectively-imposed penalty on entrepreneurial success, lacking any persuasive policy justification.

Suggested Citation

Zelinsky, Edward A., Reasonable Compensation. Available at SSRN: or

Edward A. Zelinsky (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

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