- 21 - Mr. and Mrs. Cummings did not explain this apparent inconsistency. This factor favors petitioner somewhat. b. Character and Condition of the Company A company's size as indicated by its sales, net income, or capital value, the complexities of the business, and general economic conditions is relevant in deciding whether management fees are reasonable. Elliotts, Inc. v. Commissioner, 716 F.2d at 1246; see E. Wagner & Son, Inc. v. Commissioner, 93 F.2d 816, 819 (9th Cir. 1937); General Water Heater Corp. v. Commissioner, 42 F.2d 419, 420 (9th Cir. 1930), affg. 14 B.T.A. 4 (1928). Petitioner's performance improved during the years in issue. Petitioner's gross sales increased 18.96 percent in fiscal year 1990 and 25.49 percent in fiscal year 1991. Its total assets increased 23.96 percent in fiscal year 1990 and 6.6 percent in fiscal year 1991. Its taxable income increased 49.20 percent in fiscal year 1990 and 46.53 percent in fiscal year 1991. This factor favors petitioner. c. The Hypothetical Investor's Viewpoint It is appropriate to consider whether the amount paid for management service is reasonable from the perspective of a hypothetical independent investor. Elliotts, Inc. v. Commissioner, supra at 1247. To calculate the return on investment, we divide taxable income before net operating lossesPage: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Next
Last modified: May 25, 2011