-28-
The record does not indicate that petitioner determined Mr.
Leonard’s bonus based on any consistently applied formula or plan.
Neither is there information in the record regarding petitioner's
other employees.
It is, however, permissible to pay and deduct compensation for
services performed in prior years. See Lucas v. Ox Fibre Brush Co.,
281 U.S. 115, 119-120 (1930); American Foundry v. Commissioner, 59
T.C. at 239. Petitioner did not compensate Mr. Leonard during 1985
and 1986 for two reasons. First, the pipeline construction industry
is volatile, and petitioner's earning history reflects the classic
cycle of boom and bust. Petitioner was unable to pay Mr. Leonard
a bonus prior to 1987 because of economic instability. Secondly,
petitioner’s board of directors determined that the restrictions
placed by the Royal Bank of Canada prohibited petitioner from
compensating Mr. Leonard during these years. In 1987, the board
concluded that petitioner benefited from Mr. Leonard’s securing the
right to bid on and participate in large pipeline construction
projects, as well as his expertise and reputation in the coating and
insulation of pipe. While we are mindful that petitioner's board
consisted only of Mr. Leonard and his son, we nonetheless believe
(and thus hold) that petitioner's 1987 compensation to Mr. Leonard
represented, in part, an attempt to rectify his 1985 and 1986
undercompensation,11 see Lucas v. Ox Fibre Brush Co., supra, and in
11 The fact that Mr. Leonard was compensated by the
petitioner-Anchor Wate joint venture in 1985 and 1986 does not
(continued...)
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011