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not to nonshareholder-employees, and the absence of dividends.
Elliotts, Inc. v. Commissioner, supra at 1246; Nor-Cal Adjusters
v. Commissioner, 503 F.2d at 362.
Respondent argues that petitioner's dividends of $3,000 and
$3,250 were "de minimis" in comparison to Kleindienst's bonuses
of $344,710 and $264,800 during the years in issue,
respectively. The negligible amount of dividends here is
suspicious. Owensby & Kritikos, Inc. v. Commissioner, supra at
1324. However, this alone is not determinative, and valid
business reasons could exist for not paying dividends. Id.;
Levenson & Klein, Inc. v. Commissioner, 67 T.C. 694, 714 (1977).
At least one court has relied on the absence of dividends to
find compensation unreasonable despite the taxpayer's assertion
that there were legitimate business reasons for not paying them.
Rutter v. Commissioner, 853 F.2d at 1273. The court reasoned
that the corporation's failure to pay dividends could not be
justified in light of the large bonuses the corporation paid its
shareholder-employee.
In this case, petitioner presented legitimate business
reasons for not paying dividends. Yet, petitioner paid
substantial bonuses to Kleindienst despite the purported need to
retain earnings. Although we do not second-guess petitioner's
reasons for not paying dividends, the trivial amount of
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