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provided services, and, whether the business was profitable or
not, they were entitled to reasonable compensation for their
services. See Achiro v. Commissioner, supra.
We believe the January 24, 1983, Eurotor contract with MTNV
was bona fide. Although not in effect during the years in issue,
it corroborates petitioners' assertions. See Paula Constr. Co.
v. Commissioner, supra. Allen testified that he drafted the
document in 1983. A list of documents that was kept at MTNV’s
offices in 1983 included the January 24, 1983, contract. (The
contract did not mention a franchise or refer to any other
contracts or agreements.) The contract embodied Santandreu’s
promise to the Eurotor shareholders that they would be
compensated for bringing the Medieval theme show to the United
States. The management contract that was in effect during the
years in issue was substantially a renegotiation of the
January 24, 1983, contract.
2. Compensation in Proportion to Stockholdings
Respondent argues that a distribution of management fees in
proportion to stockholdings is indicative of disguised dividends.
“As the regulations explain, however, even payments made to
shareholders in proportion to their ownership are, as a general
rule, improper only if they are in excess of what is usually paid
for similar services.” Owensby & Kritikos, Inc. v. Commissioner,
819 F.2d 1315, 1325 (5th Cir. 1987), affg. T.C. Memo. 1985-267;
sec. 1.162-7(b), Income Tax Regs.
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