Generally, a closely held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

Question

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A closely held family corporation can take a deduction for a salary paid to a family member if the salary is reasonable and for services actually rendered. However, the salary must be commensurate with the services performed and the amount paid to an owner-employee must not be higher than what would normally be paid to a non-owner-employee for the same services.

Generally, a Closely Held Family Corporation Is Not Permitted to Take