- 28 -
Finally, petitioner argues that Mr. Schoenecker's
compensation was paid under a formula agreed to in 1974 in an
arm's-length transaction. If this were the fact, it might have a
bearing on the reasonableness of Mr. Schoenecker's compensation,
although it would not be conclusive as to its reasonableness if
the conditions in the company had changed. See Patton v.
Commissioner, 168 F.2d 28 (6th Cir. 1948), affg. a Memorandum
Opinion of this Court dated Apr. 30, 1947. However, here it is
not at all clear that the agreement entered into in 1974, when
petitioner was a 50-percent owner of BI, and because of an injury
the other 50-percent owner-officer could work only part-time, was
at arm's length. However, even if we assume that the agreement
made in 1974 was an arm's-length agreement, Mr. Schoenecker's
compensation for the years here in issue was not computed under
this agreement. The 1974 agreement provided for $108,000 yearly
base compensation and a bonus of 8 percent of net income of BI
and subsidiaries before taxes. By 1988 the base compensation of
Mr. Schoenecker had been upped to $400,000, and in 1989, 1990,
and 1991 it was $500,000, and the bonus percentage had become 10
percent in 1988, and 12 percent in 1989, 1990, and 1991. The
information to determine exactly the amount Mr. Schoenecker would
have received in each of the years here in issue under the 1974
agreement is in this voluminous record and shows that applying
the formula under the 1974 agreement, Mr. Schoenecker's salaries
and bonuses would have been $567,884 for BI's fiscal year 1988,
Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 NextLast modified: May 25, 2011