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It is difficult to compare the management fee and employee
salary data in our record because some of it is based on fiscal
years and some is based on calendar years. See footnotes 1 and 2
and accompanying text at par. C-3. However, it seems that the
management fees were substantially larger than the total amount
of salaries Dacor and Kadac paid to their employees.
f. Comparison of Management Fees to Gross Receipts
Courts have compared gross receipts to compensation in
deciding whether compensation is reasonable. Elliotts, Inc. v.
Commissioner, supra at 1246; Mayson Manufacturing Co. v.
Commissioner, 178 F.2d at 119. Here, the management fees were
6.86 percent, 7.84 percent, and 17.69 percent of gross sales in
fiscal years 1989 to 1991, respectively. Mr. Cummings'
compensation was 1.9 percent, 3.5 percent and 0.9 percent of
gross sales in fiscal years 1989 to 1991.
Petitioner contends that compensation of the key individual
in a company is reasonable if it falls between 10 and 25 percent
of gross sales. Petitioner cites RAPCO, Inc. v. Commissioner,
T.C. Memo. 1995-128; Donald Palmer Co. v. Commissioner, T.C.
Memo. 1995-65 (compensation was 31.4 percent of gross sales for
Palmer; we allowed 5.5 percent); Acme Constr. Co. v.
Commissioner, T.C. Memo. 1995-6 (compensation was 10.2 percent of
gross sales for Horth); BOCA Constr., Inc. v. Commissioner, T.C.
Memo. 1995-5 (compensation totaled 27.7 percent and 31.1 percent
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