Choate Construction Co. - Page 34

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            that their own bonuses were based on their work, not on their                                
            stock ownership.  Dudley and Freese were inconsistent on this                                
            point.  Choate, who made the decision, was not.                                              
                  Respondent contends that the facts here are like those in                              
            Nor-Cal Adjusters v. Commissioner, T.C. Memo. 1971-200, affd. 503                            
            F.2d 359 (9th Cir. 1974).  We disagree.  In Nor-Cal Adjusters,                               
            unlike in this case:  (1) Bonuses were paid only to officer-                                 
            shareholders and not to nonshareholder employees who did work                                
            similar to that done by officer-shareholders; (2) bonuses were                               
            exactly proportionate to stock ownership; and (3) the taxpayer's                             
            compensation plan was not based on a percentage of billings as                               
            were those of other independent insurance adjusting firms.                                   
                  Respondent contends that this case is similar to Pacific                               
            Grains, Inc. v. Commissioner, 399 F.2d 603, 607 (9th Cir. 1968),                             
            affg. T.C. Memo. 1967-7.  We disagree.  In Pacific Grains, Inc.                              
            v. Commissioner, supra at 606-607, unlike this case:  (1) The pay                            
            at issue did not include catchup pay for prior services, and (2)                             
            the taxpayer did not pay dividends and had no reason to                                      
            accumulate earnings and not to pay dividends.                                                














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