- 22 - 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) datedPage: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Next
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