The IRS is less likely to raise the issue of reasonable compensation during the audit of a publicly held corporation than a closely held corporation.

Question

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This is because publicly held corporations are subject to greater scrutiny and must comply with stricter regulations, including those related to executive compensation. Therefore, the IRS may assume that reasonable compensation has already been carefully considered and established by the corporation's board of directors and compensation committee. In contrast, closely held corporations may be more prone to setting unreasonable compensation levels for shareholder-employees, which can trigger an IRS audit.

The IRS Is Less Likely to Raise the Issue of Reasonable