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petitioner's gross sales. For 1992, petitioner had gross sales
of $26,066,541 under the completed contract method of accounting
and $30,042,011 under the percentage of completion method. This
factor favors petitioner.
7. Distributions to Shareholders and Retained Earnings
Courts consider the amount of distributions to shareholders
in deciding if compensation is reasonable. Mayson Manufacturing
Co. v. Commissioner, supra. The failure to pay more than a
minimal amount of dividends may suggest that some of the amounts
paid as compensation to a shareholder-employee are dividends,
Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d at 1322-1323,
and warrant further scrutiny by the court, Edwin's, Inc. v.
United States, 501 F.2d 675, 677 n.5 (7th Cir. 1974). However,
corporations are not required to pay dividends; shareholders may
be equally content with the appreciation of their stock if the
company retains earnings. Owensby & Kritikos, Inc. v.
Commissioner, supra; Home Interiors & Gifts, Inc. v.
Commissioner, supra at 1161.
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