Question

Which of the following factors would not be considered in determining of compensation paid to a shareholder/employee is reasonable?

a. Duties and responsibilities
b. What individuals performing in comparable capacities at other companies are paid
c. If the corporation has a formal compensation policy
d. The individuals marginal income tax rate

Answer 1

The factors considered in determining the reasonableness of compensation paid to a shareholder/employee and the one factor that is not considered.

Step-by-step explanation:

In determining whether the compensation paid to a shareholder/employee is reasonable, there are several factors typically considered. The question asks which of the following factors would not be considered:

1. Duties and responsibilities: The nature and extent of the individual's duties and responsibilities would be considered as it directly impacts the level of compensation.
2. What individuals performing in comparable capacities at other companies are paid: Comparing the compensation of individuals in similar roles at other companies helps establish industry standards.
3. If the corporation has a formal compensation policy: A formal compensation policy ensures fairness and consistency in determining the compensation.
4. The individual's marginal income tax rate: This factor would not generally be considered in determining the reasonableness of compensation.

Therefore, the correct answer is d) The individual's marginal income tax rate.