That now unfortunate title was meant to suggest that the IRS might easily argue such in a professional corporation with employee-professionals or ancillary profit centers, not that the argument should be successful. Since that time there has been mercifully little activity in the Tax Court involving reasonable compensation of professional corporation stockholders, and those stockholders have had some major Tax Court successes. The majority believes that doctors are not in trade because they are members of a learned profession, whose stock in trade is knowledge, not goods or merchandise. Perhaps professional corporation stockholders should take heed.
Reasonable compensation is certainly a matter subject to valuation.
As will be seen from the Court s review of the case, the return on corporate assets, likewise a valuation matter, was relevant to the case as well. Notwithstanding the relevance of valuation matters, these were not mentioned anywhere in the opinion. Background Pediatric Surgical Associates is a Texas corporation. These expenses were apparently directly allocated where applicable, such as payroll taxes or individual fringe benefits and then overhead items were equally allocated. Petitioner issued W-2 forms to its shareholder surgeons and that income was duly reported on the surgeon s personal income tax returns.