Michigan Tax Law Articles, Blog & Documents | Foster Swift

How Much is “Too Much”? Understanding Reasonable Compensation for Business Owners

Michael C. Zahrt, Zachary W. Miller (Summer Associate) — Tue, 07 Jul 2026 09:00:01 -0400

For owners of closely held businesses, compensation planning is more than just a business decision—it’s a tax strategy that can invite IRS scrutiny and the recharacterization of compensation if not handled carefully.

Why Compensation Matters

The tax rules allow businesses to deduct “reasonable” compensation paid to employees, including owner-employees. But when compensation is considered too high, the IRS can reclassify the excess as a dividend. This creates a mixed result: the individual may benefit from lower dividend tax rates, but the company loses a valuable ...

Energy Credits Under Scrutiny: What Strieby Means for Investors and Partnerships

Nicholas J. Stock II, Michael C. Zahrt — Thu, 05 Feb 2026 09:00:02 -0500

IRS has made a habit of challenging whether a member of a limited liability company that is treated as a partnership for tax purposes is materially participating in the activities of the partnership.

A recent Tax Court case (Strieby v. Commissioner) considers whether the passive activity credit limitation rules of Code Section 469 may prevent taxpayers from claiming energy credits allocated to them by virtue of their membership interests in a partnership.[1]

Facts Presented.

In Strieby, taxpayers invested in a solar farm but their only involvement consisted merely of completing ...