IRS Eyeing Executive Pay

Spousal and dependent travel expenses. Bring the kids to the Orlando conference, but don't expect the company to catch a break. Regulation 274, the rule that cites club membership provisions of the tax code, also deals with travel expenses. The provision stipulates that family travel expenses are only deductible in certain circumstances. For example, if the husband and kids of the executive are employees of the company; if they are traveling for a bona fide business purpose; or if they pay their own way, and the outlay is an otherwise deductible expense. Short of those unusual situations, however, the travel expenses should be characterized as compensation paid to the executive.

Transfer of property. Even something as seemingly insignificant as a company-issued mobile phone can be considered part of an executive's gross pay if ownership is transferred to the employee. The same goes for other items, such as laptop computers or partial ownerships of apartments or other real estate. They're all considered general forms of compensation unless the company is strict about making the sure an item is "signed in and out," when the executive begins and finishes using the property, says Rogers. Ownership, including maintenance of the item, should be the company's responsibility and therefore a write-off.

Wealth management. As part of many executive employment agreements, or sometimes separate or oral pacts, executives are provided with services, or a sum of money to purchase services, from investment and accounting firms used by the company. Generally, the perquisite is viewed as a taxable benefit because it is given in lieu of compensation, although there are some exceptions listed in Section 132 of the tax code, including wealth management offerings that qualify as a company-wide discount. Says Rogers: A wise executive would welcome the taxable benefit because paying tax on the service is a far less out-of-pocket cost than paying for the service itself.

• « previous
• 1
• 2