41
honored under section 1.162-7(b)(2), Income Tax Regs. Here too,
there was no such free bargain.19
As petitioners concede, this factor favors respondent.
(e) Internal Consistency
This factor requires comparison with how other employees in
the business were paid compared to the employee in question and
with how the employee himself was paid in other years. Elliotts,
Inc. v. Commissioner, supra at 1247-1248.
In these cases, for purposes of comparing salaries of other
employees with Mr. Munro's compensation, we have information only
for 1987. In that year, $500,112 out of Mr. Munro's total
compensation of $1,000,112 was wages and salary, whereas the
wages and salary of petitioners' other two primary executives,
Mr. Brewer and Mr. Clearman, were $191,748 and $78,000,
respectively.
Although Mr. Munro's compensation in previous years had been
substantial, the management fee or bonus of $500,000 for 1987
was, as far as we know, unprecedented in the history of Pertinax
and its partners.
Petitioners concede that this factor also favors respondent.
19We need not take into account either version of the
Management Agreement, both because there was no free bargain and
because the record indicates that neither version was actually
given effect by the parties. Thus, we need not discuss the
parties' arguments about whether the Management Agreements were
enforceable under California contract law.
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