- 35 -
Elliotts, Inc. v. Commissioner, 716 F.2d at 1248; Kennedy v.
Commissioner, supra at 174. Rogers' bonus formula was
established in the corporate minutes at the beginning of 1989.13
Thus, the bonus formula was not longstanding. Cf. Mayson
Manufacturing Co. v. Commissioner, 178 F.2d at 120 (bonus
contracts basically unchanged since they were negotiated in 1929,
held reasonable for taxable year 1943). Rogers is the 100-
percent shareholder of petitioner, its director, and its
president. Rogers alone determined the salary and bonus
compensation of every employee, including himself. Thus, Rogers
and petitioner were not dealing at arm's length. See Estate of
Wallace v. Commissioner, 95 T.C. at 555; cf. Mayson Manufacturing
Co. v. Commissioner, supra at 121 (bonus plan established by
board of directors for minority shareholders was an arm's-length
transaction). Where an employer and employee are not dealing at
arm's length, the amount of compensation may be unreasonable.
Owensby & Kritikos, Inc. v. Commissioner, supra at 1324;
Elliotts, Inc. v. Commissioner, supra at 1246.
Petitioner notes on brief that respondent previously
reviewed the bonus formula in the examination of petitioner's
1989 return. The result of that examination was a $211 refund,
and no adjustment was proposed to the deduction for compensation
13 In 1989, Rogers' base salary was $500,000; in 1990 it
was $1 million. In both years, the bonus formula was 50 percent
of pretax profit.
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