- 9 - 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).Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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