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5. Petitioner's Financial Condition
The past and present financial condition of a company is
relevant to deciding whether compensation was reasonable. Home
Interiors & Gifts, Inc. v. Commissioner, supra at 1157-1158.
Respondent concedes that petitioner had become financially
successful by 1992. Respondent points out that petitioner's
gross and net profit margins for the fiscal year ending June 30,
1992, were 8.6 percent and 1.3 percent, which is less than the
average of 9.8 and 1.6 percent for commercial construction
contractors with receipts of $10 to $50 million, according to
Robert Morris Associates (RMA) data. We give this RMA data
little weight because we doubt that the companies on which it is
based were in only their third year of operation.
This factor favors petitioner.
6. Comparison of Salaries Paid With Sales and Net Income
Courts have compared sales and net income to amounts of
compensation in deciding whether compensation is reasonable.
Mayson Manufacturing Co. v. Commissioner, supra. Respondent
concedes that Choate's compensation was a small percentage of
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