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162(a)(1). A taxpayer may deduct compensation if it is: (1)
Reasonable in amount, and (2) purely for services. Sec.
162(a)(1); Rutter v. Commissioner, 853 F.2d 1267, 1271 (5th Cir.
1988), affg. T.C. Memo. 1986-407; Owensby & Kritikos, Inc. v.
Commissioner, 819 F.2d 1315, 1322-1323 (5th Cir. 1987), affg.
T.C. Memo. 1985-267. Thus, we must decide whether petitioner has
shown that the compensation petitioner paid to Choate in 1992 was
reasonable in amount and whether it was purely for services.
1. Factors Considered in Deciding If Compensation Is
Reasonable in Amount
Courts have considered many factors in deciding whether
compensation is reasonable in amount, such as: (1) The
employee's qualifications; (2) the nature and scope of the
employee's work; (3) the size and complexity of the business; (4)
general economic conditions; (5) the employer's financial
condition; (6) a comparison of salaries paid with sales and net
income; (7) distributions to shareholders and retained earnings;
(8) whether the employee and employer dealt at arm's length, and
if not, whether an independent investor would have approved the
compensation; (9) the employer's compensation policy for all
employees; (10) the prevailing rates of compensation for
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