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Respondent correctly acknowledges that it is well settled
that under some circumstances, reasonable additional compensation
of officers for services rendered in prior years is deductible
from the corporation's income for the year in which paid. Lucas
v. Ox Fibre Brush Co., 281 U.S. 115 (1930). However, a taxpayer
claiming that part of the payment to an officer in the current
year is for services rendered for prior periods must show: (1)
The insufficiency of the officer's compensation in the previous
year, and (2) the amount of the current year's compensation that
was intended as compensation for that underpayment. Pacific
Grains, Inc. v. Commissioner, 399 F.2d at 606; Estate of Wallace
v. Commissioner, supra at 554; Pulsar Components Intl., Inc. v.
Commissioner, T.C. Memo. 1996-129. We have found as a fact that
the $500,000 increase in Rogers' base salary was intended to
compensate him for service in prior years. Therefore, it is only
the first prong that is at issue.
Respondent denies that Rogers was undercompensated in prior
years. In support of his position, respondent notes that in
1986, Rogers' compensation was very nearly one-half of
petitioner's taxable income, and that in 1988 and 1989, it was
more than one-half. Moreover, respondent argues that as
petitioner paid Rogers more than $1.5 million over those 4 years,
Rogers could not have been undercompensated.
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