Surely, if one is to retain surgeons of exceptional caliber, one will need to compensate them at salaries comparable to similar individuals. No evidence was apparent in the opinion that a comparable pay analysis was submitted, generally the most important test for reasonable compensation. Further, there is no mention of what administrative responsibilities the shareholder surgeons must have has, although the Judge noted specifically that the nonshareholders did not have any such responsibilities. One wonders whether the result would have been different if the taxpayer s had prevailed in their argument that the IRS changes from its original Notice of Deficiency constituted a new matter, resulting in a shift of the burden of proof to the IRS under the IRS Restructuring and Reform Act of 1998. Judge Halpern ruled against the taxpayer s motion in this regard.
Taxpayer has burden of proving compliance with above.
Conclusion Bad presentations make for bad decisions. Given the dearth of cases on this topic and the implications for professional practices in general, this case is likely to be given far more weight than the written opinion indicates it deserves. If it is to be considered precedent, then CPA, law, architectural, consulting and a host of other firms need to immediately reevaluate their compensation schemes. This would appear to expose any compensation arrangement not supported by a quantitative methodology to challenge.