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Petitioner's compensation of officers was 7.2 percent of
sales. In Mayson Manufacturing Co., the Court found compensation
that was more than 25 percent of sales to be reasonable. Mayson
Manufacturing Co. v. Commissioner, supra at 120. Petitioner's
officers' compensation was 41 percent of petitioner's ordinary
income before taxes and deduction of officers' compensation. We
have found that compensation equal to 43 percent of gross profit
is reasonable for a company comparable in size to petitioner.
L & B Pipe & Supply Co. v. Commissioner, T.C. Memo. 1994-187.
This factor tends to show that the compensation at issue
was reasonable.
e. General Economic Conditions
General economic conditions may affect a company's
performance and, thus, show the extent, if any, of an employee's
effect on the company. Elliotts, Inc. v. Commissioner, supra;
Mayson Manufacturing Co. v. Commissioner, supra.
Petitioner's sales increased more than 70 percent in the 2
years before the year in issue. Petitioner's officers testified
that petitioner succeeded because there was an economic boom in
Southern California before and during the year in issue.
Respondent did not effectively challenge their testimony on this
point. This factor tends to show that the compensation at issue
was unreasonable.
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