Metro Leasing and Development Corporation - Page 9




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          provided all relevant information to their accountant and relied            
          upon his expertise and judgment in the preparation and reporting            
          of Federal income.                                                          
                                       OPINION                                        
          I.  Reasonable Compensation                                                 
               The parties disagree about the methodology to be used for              
          measuring or determining the amount of reasonable compensation.             
          They also rely on differing facts in applying the standards.                
          Section 162 provides for deductions for ordinary and necessary              
          expenses incurred in carrying on a trade or business, including a           
          reasonable allowance for salaries or compensation for services              
          performed.                                                                  
               Respondent, emphasizing case law from opinions of the Court            
          of Appeals for the Ninth Circuit,3 argues that when payments are            
          made to a corporate employee who is also a principal shareholder,           
          the compensation must be reasonable in amount and have a purely             
          compensatory purpose.  See O.S.C. & Associates, Inc. v.                     
          Commissioner, 187 F.3d 1116, 1119-1120 (9th Cir. 1999) (and cases           
          cited therein), affg. T.C. Memo. 1997-300.                                  
               Respondent also points out that the Court of Appeals for the           
          Ninth Circuit traditionally has looked to five factors, none of             
          which is decisive, to evaluate whether compensation is                      
          reasonable, to wit:  (1) The employee’s role in the company; (2)            

               3 Barring a stipulation to the contrary, any appeal from               
          this Court’s decision would be to the Court of Appeals for the              
          Ninth Circuit.  See sec. 7482(b).                                           



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