- -24
return on equity for years not at issue in this case is less
relevant than the return on equity for the year that is before
us, the evidence in the record indicates that except for the
short taxable year 1990, where the return on equity would be
skewed in favor of a low return, the return on equity for the
years shortly after the year at issue were very good as well. We
find that petitioner maintained a high return on equity.
However, petitioner's capital also included borrowed capital.
This borrowed capital was from loans made to petitioner by the
Penalbas, apparently from the large salaries they were paid. In
this situation, the return on equity is of limited importance.
Also, the high return on equity does not mean that an
unrelated stockholder would be willing to have nearly twice the
amount paid by petitioner as officers' salaries as its remaining
total income, if equally competent officers were available for
more reasonable amounts of compensation.
One factor to be considered is whether the compensation at
issue was paid pursuant to a structured, formal, and consistently
applied program.
The record indicates that the bonuses paid to the Penalbas
were not based on the bonus plan entered for its fiscal year
1990. Since petitioner did not file a brief in this case, we are
not privy to its position on this issue. Petitioner's accountant
testified that the bonuses that petitioner paid to the Penalbas
complied with the terms of the bonus plan. This is contradictory
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011