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the renegotiation resulted in additional fees of approximately
$20,000 per year.
The Eurotor MANV/MDT management contract also had a fee of
2 percent of gross production. Notwithstanding that the contract
was probably not ratified until 1987, the castle opened in 1986
and the operation’s profitability was untested at the time the
fee was determined.
In Good Chevrolet v. Commissioner, T.C. Memo. 1977-291, this
Court addressed the reasonableness of compensation paid to two
employees of an automobile dealership. The two employees held
100 percent of the corporation’s stock. The issue was whether
bonuses that constituted predetermined percentages of profits
were reasonable. The facts that tended to support a finding of
excess compensation included: The two shareholders controlled
the corporation's finances; the amount of net income paid out as
bonuses during the years in issue approximated 60 percent per
year; and the success of the business was due in part to
fortuitous economic conditions and not to altered or augmented
endeavors by them. The facts that tended to support the
reasonableness of the compensation included: The business was
extraordinarily successful, due in part to programs instituted by
the shareholders; the shareholders were astute, aggressive
businessmen; and, although a percentage of the profits was
determined before one shareholder had a controlling interest in
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