In Exacto Spring Corp. v. Commissioner, the Seventh Circuit held that the salary a closely held corporate taxpayer paid to its Chief Executive Officer (CEO) was reasonable within the meaning of section 162(a)(1) and therefore deductible as an ordinary and necessary business expense. In reversing the decision of the Tax Court, the Seventh Circuit employed an independent investor test rather than the traditional multifactor balancing test to determine that the salary paid was reasonable. Previous courts have viewed the multifactor test through the lens of an independent investor, but Exacto Spring is the first case in which a court has held that the independent investor test alone is sufficient to make a determination of reasonableness.Part I of this Note provides background on section 162(a)(1) and explains the evolution of the salary reasonableness test in the context of the closely held corporation. Part II describes the facts of Exacto Spring and explains the decisions of both the Tax Court and the Seventh Circuit. Part III analyzes the Seventh Circuit’s decision, and Part IV considers the tax planning implications of Exacto Spring.