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Spring Corp. to circumstances where reasonable compensation must
be measured for purposes of section 280G. We do not do so,
because we conclude that use of the independent investor test to
determine reasonable compensation for purposes of section 280G
would contravene congressional intent.
“Reasonable compensation” as that term is used in section
280G(b)(4) is not further defined in the statute. Neither the
committee nor conference reports accompanying the enactment of
original section 280G in the Deficit Reduction Act of 1984, Pub.
L. 98-369, 98 Stat. 494, provide any guidance regarding how
“reasonable compensation” as employed in section 280G(b)(4) is to
be determined. However, the Joint Committee on Taxation’s
General Explanation covering the legislation states:
In the case of an employment contract, whether payments
under it would be deemed reasonable would depend on all
the facts and circumstances, including the individual’s
historic compensation, the duties to be performed under
the contract, and the compensation of individuals of
comparable skills outside of an acquisition context.
[Staff of Joint Comm. on Taxation, General Explanation
of the Revenue Provisions of the Deficit Reduction Act
of 1984, at 204 (J. Comm. Print 1984).]
An amendment to the statute 2 years after section 280G was
enacted contains direct legislative history concerning the intent
underlying “reasonable compensation”. In 1986, Congress amended
section 280G(b)(4) to provide, in cases where the taxpayer
establishes that a parachute payment constitutes reasonable
compensation, for different treatment where the reasonable
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