The following article is reprinted from the October 2004 issue of the Business & Compensation Planning newsletter. The Business & Compensation Planning newsletter is published four times a year by and for the Society of Financial Service Professionals (SFSP). Statements of fact or opinion are the responsibility of the authors and do not represent an opinion on the part of committee members, officers, individuals, or staff of SFSP.

The Internal Revenue Service (IRS) has recently undertaken an audit initiative focusing on compensation arrangements provided to corporate executives and directors. The initiative arises out of a comprehensive compliance strategy that the IRS is developing and implementing in the area of executive compensation. The consensus within the IRS is that there is a wide range of noncompliance in this area, particularly in light of the increasing complexity and use of executive compensation arrangements such as stock options, nonqualified deferred compensation and lucrative fringe benefits.