H & A International Jewelry, Ltd. - Page 17

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          $2,200,000 and $500,000 in 1991 and 1992, respectively.  We agree.          
               Comparison of Salaries Paid With Dividends to                          
               Shareholders                                                           
               The failure to pay more than minimal dividends may suggest             
          that reported compensation actually is (in whole or in part) a              
          dividend.  Owensby & Kritikos, Inc. v. Commissioner, supra at               
          1323-1324; Charles Schneider & Co. v. Commissioner, 500 F.2d at             
          151-152.  Corporations, however, are not required to pay                    
          dividends.  Indeed, shareholders may be equally content with the            
          appreciation of their stock caused, for example, by the retention           
          of earnings.  Owensby & Kritikos, Inc. v. Commissioner, supra;              
          Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. at 1162.              
          Nevertheless, a corporation's failure to pay dividends may be a             
          factor in determining the reasonableness of officer compensation.           
               Since its incorporation in 1983, petitioner has never paid a           
          dividend to shareholders.  The board of directors, which has the            
          authority to pay dividends and award bonuses, has always                    
          consisted solely of Mr. and Mrs. Haviv, who are also the only               
          employees ever to receive yearend bonuses.                                  
               Prevailing Rates of Compensation for Comparable                        
               Positions in Comparable Companies                                      
               Respondent's regulations provide that:                                 
               It is, in general, just to assume that reasonable and                  
               true compensation is only such amount as would                         
               ordinarily be paid for like services by like                           
               enterprises under like circumstances.   ***[Sec. 1.162-                
               7(b)(3), Income Tax Regs.]                                             
          Both parties testified to the difficulty of finding a business              
          comparable to petitioner.  In determining that $207,852 and                 



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