Choate Construction Co. - Page 25

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                  9.    Petitioner's Compensation Policy for All Employees                               
                  Courts have considered the taxpayer's compensation policy                              
            for other employees of the business in deciding whether                                      
            compensation is reasonable.  Mayson Manufacturing Co. v.                                     
            Commissioner, 178 F.2d at 119; Home Interiors & Gifts, Inc. v.                               
            Commissioner, 73 T.C. at 1159.  This factor focuses on whether                               
            the entity pays top dollar to all of its employees, including                                
            both shareholders and nonshareholders.  Owensby & Kritikos, Inc.                             
            v. Commissioner, supra at 1329-1330.                                                         
                  Petitioner paid Choate at the high end of the compensation                             
            range.  Petitioner points out that its project managers and                                  
            superintendents often make more from bonuses (which are based on                             
            performance) than they do from salaries, but petitioner presented                            
            no evidence that its other employees were paid at or near the                                
            high end of the compensation range.  Cf. Home Interiors & Gifts,                             
            Inc. v. Commissioner, supra at 1159-1160.                                                    
                  This factor favors respondent.                                                         

















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Last modified: May 25, 2011