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e. Consistency of Payments for Similar Services
Within Petitioner
Evidence that a company pays controlling shareholders the
same that it pays other employees for similar work may indicate
that compensation is reasonable. Elliotts, Inc. v. Commissioner,
supra at 1247; Sunset Scavenger Co. v. Commissioner, 84 F.2d 453,
456 (9th Cir. 1936), affg. in part and revg. in part 31 B.T.A.
758 (1934). Petitioner provided no convincing analysis whether
management fees it paid to Dacor and Kadac were reasonable in
relation to salaries it paid to its employees.
Petitioner contends that this factor favors petitioner
because the amounts Dacor and Kadac paid to their employees were
generally less or equal to the amounts petitioner paid to its
department managers during the years in issue. We disagree.
Petitioner's argument does not explain why the full amount of the
management fee petitioner paid to Dacor and Kadac is reasonable.
Petitioner does not adequately explain why it is reasonable for
management fees to substantially exceed Dacor's and Kadac's
payments to the individuals. If petitioner's payments to Kadac
and Kadac's payments to its employees in 1991 occurred ratably
throughout the year, then, for the period April 1, 1988, to March
31, 1991, petitioner's management fees paid to Dacor and Kadac
totaled $1,721,890 and Dacor and Kadac's payments to their
employees totaled $1,037,860.80.
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