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Commissioner, supra, in that it states that compensation as a
percentage of gross sales is one of the factors we may consider.
We disagree with petitioner's reliance on Universal
Manufacturing Co. v. Commissioner, supra. The issue here is not
whether Mr. Cummings' compensation is reasonable. It is whether
the management fees petitioner paid to Dacor and Kadac were
reasonable. Further, in that case, unlike here, part of the pay
during the year in issue was catchup pay for prior years. The
taxpayer in that case introduced evidence comparing the
compensation at issue with that paid by other companies.
Petitioner did not do so here. The executive in that case
guaranteed the taxpayer's $2.8 million debt. There is no similar
guarantee in this case. The cases petitioner cites do not show
that the management fees at issue in this case are reasonable.
This factor favors petitioner.
4. Conclusion About Management Fees
We conclude that petitioner is entitled to deduct more
management fees than respondent allowed for each year in issue,
but that part of the management fees that petitioner paid during
the years in issue was not reasonable. Considering the above
discussion and the entire record, we hold that petitioner may
deduct management fees of $213,000, $525,000, and $554,000 for
fiscal years 1989, 1990, and 1991, respectively. This amount is
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