- 28 -
reasonable in amount, considering that Toon paid Choate $250,693
in 1983, $312,134 in 1984, $434,148 in 1985, and $460,000 in
1986. Choate's average pay from Toon for 1985 and 1986 was
$447,074, slightly more than his 1990-92 average pay from
petitioner. This fact tends to show that Choate's pay in 1992
was reasonable.
This factor favors petitioner.
11. Compensation Paid in Prior Years
An employer may deduct compensation paid in a year for
services rendered in prior years. Lucas v. Ox Fibre Brush Co.,
281 U.S. 115, 119 (1930); R.J. Nicoll Co. v. Commissioner, 59
T.C. at 50-51. Respondent contends that petitioner's pay to
Choate in 1992 did not include catch-up pay for 1990 and 1991.
We disagree. Choate testified that his compensation for 1992
included catch-up pay for his services to petitioner before 1992.
Choate received no pay in his first 6 months working for
petitioner. Petitioner underpaid Choate in 1990 and 1991 to keep
more cash in the company so that it could obtain surety bonds.
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