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f. Taxpayer's Salary Policy to All Employees
Courts have considered the taxpayer's salary policy for its
other employees in deciding whether compensation is reasonable.
Home Interiors & Gifts, Inc. v. Commissioner, supra at 1159.
There is no evidence that petitioner has a formal policy for
setting salaries for its officers or other employees. Because
the record is not clear on this point, we do not apply this
factor.
g. Taxpayer's Financial Condition
The past and present financial condition of the company is
relevant to deciding whether compensation is reasonable. Id. at
1157-1158.
Petitioner grew from total equity (capital stock and paid-in
surplus) of $65,579 to $2,020,646 for the year in issue.
Petitioner always made a profit. For the year in issue,
petitioner's gross profit was 41 percent of gross income, return
on sales was 10.3 percent, return on assets was 22.5 percent, and
return on equity was 33 percent. Petitioner's officers'
compensation decreased 16.3 percent as a percentage of net sales
from the year before the year in issue to the year in issue while
its sales and gross profit increased nearly 30 percent.
Petitioner points out that a survey by the Sheet Metal and
Air-Conditioning Contractors' National Association (SMACNA) dated
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