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LIC-6.03 - Change of Ownership During the Year and Calculation of the Compensation Allowance Deduction

Administrative Rules Adopted by Revenue Division Pursuant to Rule-Making Authority

When ownership of a partnership or corporation changes during the year, special rules apply to calculate the amount of the compensation allowance deduction. The compensation allowance deduction, when changes in ownership take place, shall be based on a monthly formula. In order to count as a month, ownership is calculated on the number of days in the month in which the owner was a controlling shareholder or partner. Fifteen days or more counts as a full month, 14 days or less does not count as a month. Only the compensation attributable to the portion of the year that the owner is considered a controlling shareholder/partner would be added back to calculate net income.
Example 1: George Whitney becomes a controlling shareholder on February 22nd. His compensation is $100,000 for the year. His compensation allowance deduction is limited to $41,667 ($50,000 x 10/12).
Example 2: PEL Partnership has three partners at the beginning of the taxable year. It is not a limited partnership. On June 15 two additional partners join the partnership and one of the previous three partners leaves the partnership. The compensation allowance deduction is calculated as follows:
Partner Comp
Period of Ownership
Comp Added Back Comp
A $100,000 12 months $100,000 $50,000*
B $100,000 12 months $100,000 $50,000*
C $ 50,000 6 months $ 50,000 $25,000*
D $ 60,000 7 months $ 60,000 $29,167*
E $ 60,000 7 months $ 60,000 $29,167*

If a controlling shareholder/partner dies during the taxable year, all compensation paid to the controlling shareholder/partner or to his estate in the year of death is added back and a full compensation allowance deduction up to the maximum deduction may be taken, regardless of when during the month or year the death occurred.
*Note: For tax years beginning on or after 1/1/99, the $50,000 compensation allowance deduction maximum is adjusted for inflation. To determine the correct maximum deduction, refer to the instructions on the Combined Report Form or the Division's website at for the year in question.


Portland City Code Section 7.02.600 A., B., C., D.
Multnomah County Code Section 12.600 A., B., C., D.

Originally adopted as Bureau of Licenses Administrative Rule 600.93-6 November 23, 1993, amended as 600.93-6A December 26, 2000.
Submitted for inclusion in PPD September 17, 2002.
Amended by Director of Revenue Division October 1, 2015.