- 24 - remanding T.C. Memo. 1980-282. Since proof of the second prong (viz., compensatory purpose) can be difficult to establish and a compensatory purpose can often be inferred if the amount of the compensation is determined to be reasonable under the first prong, "courts generally concentrate on the first prong--whether the amount of the purported compensation is reasonable." Id. What constitutes reasonable compensation is a question of fact that must be determined in light of all of the evidence. Pacific Grains, Inc. v. Commissioner, supra at 605. Many factors are relevant in determining the reasonableness of compensation, and no single factor is decisive. Elliotts, Inc. v. Commissioner, supra at 1245; Pacific Grains, Inc. v. Commissioner, supra at 606. The U.S. Court of Appeals for the Ninth Circuit (Court of Appeals) to which an appeal in this case would normally lie has divided those factors into five broad categories: (1) The employee's role in the company, (2) a comparison of the compensation paid to the employee with the compensation paid to similarly situated employees in similar companies, (3) the character and condition of the company, (4) whether a conflict of interest exists that might allow the company to disguise dividend payments as deductible compensation, and (5) whether the compensation was paid pursuant to a struc- tured, formal, and consistently applied program. Elliotts, Inc. v. Commissioner, supra at 1245-1248.Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Next
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