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to a full-time employee in each such position that determines a
reasonable salary for one employee performing many functions.
Mr. Penalba's duties as production manager and sales manager
were comparable to the CEO position in other operations. We find
no information in this record as to companies comparable to
petitioner, and, based on this record, hold a reasonable salary
for Mr. Penalba as petitioner's CEO is $671,200 as determined in
the notice of deficiency. This amount is comparable to the
maximum amounts paid to CEOs of other companies for which
statistics are in this record. We consider the $671,200 as
reasonable compensation for Mr. Penalba, solely for his work as
CEO of petitioner in its fiscal year 1990.
This record shows that Mr. Penalba, in addition to being
petitioner's CEO, was also the developer of the process for
manufacturing the cotton/Lycra fabric, which development was
responsible in large part for petitioner's increase in sales for
the year here in issue. In our view, in an arm's-length
arrangement, Mr. Penalba would have been compensated for his work
in the development of the cotton/Lycra fabric with a percent of
the sales of the cotton/Lycra fabric, in addition to his
compensation as petitioner's CEO.
Since the sales of cotton/Lycra fabric are not shown
separately in the record, we shall assume that the increase in
petitioner's sales in its fiscal year 1990, over its fiscal year
1989, were due primarily to sales of cotton/Lycra fabric. There
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