- 31 -
Inc. v. Commissioner, 716 F.2d at 1246; see Gilman Paper Co. v.
Commissioner, 284 F.2d 697 (2d Cir. 1960), affg. T.C. Memo.
1960-13.
Respondent argues that some of the compensation that
petitioner paid to the Officers was unreasonable by virtue of the
fact that some portion of their compensation exceeded the amounts
fixed in their employment agreements. We disagree. While it may
have been good corporate form for petitioner to have amended the
employment agreements to provide for the extra compensation, such
a formality is not dispositive of the realities here. Surely the
compensation paid was agreed to by the Officers, and certainly
the Officers were in control of petitioner and could have had
petitioner approve the increase in compensation. It is not
dispositive that petitioner failed to adhere to corporate
formalities in setting the amount of compensation to the
Officers. As the Court observed in Levenson & Klein, Inc. v.
Commissioner, 67 T.C. 694, 714 (1977) (quoting Reub Issacs & Co.
v. Commissioner, 1 B.T.A. 45, 48 (1924)): “Closely held
corporations, as is well known, often act informally, 'their
decisions being made in conversations, and oftentimes recorded
not in minutes, but by action.'" See id. at 713-714 (courts may
give little or no weight to the lack of corporate formality in
closely held corporations); Mad Auto Wrecking, Inc. v.
Commissioner, T.C. Memo. 1995-153.
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