IRS Auditing Corporate Executive Compensation Packages

Some of America’s largest companies are being advised to ramp up their internal auditing efforts in anticipation of an Internal Revenue Service audit of executive compensation packages.

Two dozen companies are already under the microscope with IRS auditors pouring over records covering corporate perks such as stock options, corporate jets, luxury apartments and other benefits, the Associated Press reported Friday. The IRS is not ruling out the auditing of executives’ personal returns as well.

"Executive pay packages have become much more complex. We're taking a close look at these vehicles to make sure they fully comply with the law," IRS Commissioner Mark Everson told the AP. The agency claims this is a corporate governance matter in line with efforts to crack down on abuses and excesses.

The audits, which cover companies with $10 million or more in assets, began this summer and seek to determine if companies are staying within IRS rules that govern payment of corporate officers and the doling out of luxury fringe benefits. The IRS has not identified the companies currently under scrutiny.

According to the AP, the agency is looking at compensation including business and personal use of fringe benefits such as private jets and vacation homes; benefits packages granted to retiring or departing executives; compensation programs; stock options; laws that cap deductible compensation at $1 million; arrangements that transfer compensation among family members; and employee leasing programs.

David Fuller, tax partner at the law firm of McDermott, Will & Emery, is advising corporate clients to do more in the way of internal auditing in anticipation of IRS scrutiny. He told the AP that he first learned about the IRS’s plans to audit compensation packages in April and since then it has expanded from fringe benefits and stock options to a myriad of other compensation issues. "This beast is growing," he said.

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