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Petitioner deducted Mr. Haviv's salary for 1991 and 1992 as
a business expense. This produced a loss of $132,278 for 1992
which was carried back to offset income from 1989, 1990, and
1991.
Discussion
The sole issue for determination is whether the salary and
bonus paid by petitioner to its president, Haim Haviv, in 1991
and 1992 represents reasonable compensation deductible as a
business expense. Petitioner contends that the entire
compensation paid, $601,077 in 1991 and $603,269 in 1992, was
reasonable and paid for his present and past services.
Respondent, on the other hand, determined that reasonable
compensation for Mr. Haviv was $207,852 and $224,313 for 1991 and
1992, respectively.
Section 162(a)(1) allows a deduction for ordinary and
necessary business expenses including "a reasonable allowance for
salaries or other compensation for personal services actually
rendered". Compensation which is a guise for the distribution of
dividends to employee-stockholders is not deductible. Sec.
1.162-7(b)(1), Income Tax Regs. Respondent's determination is
presumed correct, and petitioner has the burden of proving that
the amount it paid to Mr. Haviv was reasonable. Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933). If petitioner
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