- -15
$115,726, and has fixed assets under $75,000. However, we also
note the specialized skills required for making money in the
jewelry industry and recognize that petitioner increased its
sales while opening new offices in Oklahoma City, Oklahoma, in
1991 and Augusta, Georgia, in 1992.
Comparison of Salaries Paid to Gross and Net Income
Courts have compared sales, net income, and capital value to
amounts of compensation in deciding whether compensation is
reasonable. Owensby & Kritikos, Inc. v. Commissioner, supra at
1325-1326; Home Interiors & Gifts, Inc. v. Commissioner, supra
1155-1156.
For 1991 and 1992, Mr. Haviv's compensation was 9.3 percent
and 8.6 percent of gross revenue, respectively. However, Mr.
Haviv's compensation was 88 percent and 128 percent of net income
before deductions for his compensation. While considering
compensation as a percentage of both gross revenue and net income
is often helpful, the latter may be more probative because "it
more accurately gauges whether a corporation is disguising the
distribution of dividends as compensation." Owensby & Kritikos,
Inc. v. Commissioner, supra at 1325-1326.7
7 While compensation as a percentage of net income is
often of minimal significance if viewed alone, it can be an
appropriate factor pointing toward a conclusion that compensation
paid is unreasonable. Owensby & Kritikos, Inc. v. Commissioner,
819 F.2d 1315, 1326 n.34 (5th Cir. 1987), affg. T.C. Memo. 1985-
267.
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