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income (before deduction of Rogers' compensation).5 Although it
is often helpful to consider compensation as a percentage of both
gross receipts and net income, the latter is in most cases more
probative, because it more accurately gauges whether a
corporation is disguising the distribution of dividends as
compensation. Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d
1315, 1325-1326 (5th Cir. 1987), affg. T.C. Memo. 1985-267.
However, as noted previously, each case turns on its own facts
and circumstances, and no particular ratio between compensation
and gross or net taxable income is a prerequisite for a finding
of reasonableness.
Petitioner cites several cases in which this Court found
that the compensation paid was reasonable notwithstanding the
fact that the compensation was a large portion of the taxpayer's
gross and net income. See, e.g., Pulsar Components Intl., Inc.
v. Commissioner, T.C. Memo. 1996-129 (reasonable compensation was
27.3 percent of gross receipts of $10,693,635 and 82.4 percent of
$3,546,647 taxable net income (before deduction of the
compensation at issue) in 1985); Mad Auto Wrecking, Inc. v.
Commissioner, T.C. Memo. 1995-153 (reasonable compensation was
34, 28, and 38 percent of gross receipts of $2,554,942,
5 In 1990, Rogers' compensation was $4,439,180;
petitioner's net taxable income after deducting Rogers'
compensation was $2,432,253. Thus, petitioner's net taxable
income before deducting Rogers' compensation was $6,871,433.
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