- -23
reasonable. Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d
at 1327-1328. In 1991 and 1992, Mr. Haviv determined the
compensation amounts for all of petitioner's employees. There
were no written policies for making such determinations.
Salaries for Mr. and Mrs. Haviv were approved by the board of
directors at the annual meeting preceding each year. Yearend
bonuses were also approved at the annual meeting. Mr. and Mrs.
Haviv were the only employees ever to receive yearend bonuses.
Mr. Haviv received yearend bonuses of $95,000, $105,000,
$562,000, and $535,000 for 1989, 1990, 1991, and 1992,
respectively. Such substantial bonuses, declared at yearend when
corporate earnings are determinable, may indicate the existence
of disguised dividends. Id. at 1329. Disguised dividends are
even more probable when, as is the case with petitioner, the
"corporation has a history of distributing as compensation to its
shareholder-employees the bulk of its profits." Id.; Estate of
Wallace v. Commissioner, 95 T.C. at 557.12
Petitioner asserted that it paid Mr. Haviv less compensation
for his sales than it would have under petitioner's fixed
commission rate of 50 percent of profits. Petitioner asserted
that under its commission policy, Mr. Haviv would have been
entitled to a commission of $272,000 on the sale of the red
diamond in 1991. We consider the commission that a
12 As noted, in 1991 and 1992, petitioner paid 88 percent
and 128 percent of net income to Mr. Haviv in the form of
compensation.
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