- 10 -
Mr. Burton’s salary $ 17,750
Bonus allowed 88,890
Total allowed $106,640
Denovan’s salary $ 10,750
Bonus allowed 56,630
Total allowed $ 67,380
OPINION
Section 162(a)(1) allows as a deduction “a reasonable
allowance for salaries or other compensation for personal
services actually rendered”. Section 1.162-9, Income Tax Regs.,
provides that bonuses paid to employees are deductible “when such
payments are made in good faith and as additional compensation
for the services actually rendered by the employees, provided
that such payments, when added to the stipulated salaries, do not
exceed a reasonable compensation for the services rendered.”
Whether an expense that is claimed pursuant to section
162(a)(1) is reasonable compensation for services rendered is a
question of fact that must be decided on the basis of the
particular facts and circumstances. Paula Constr. Co. v.
Commissioner, 58 T.C. 1055, 1058-1059 (1972), affd. without
published opinion 474 F.2d 1345 (5th Cir. 1973). The burden is
on petitioner to show that it is entitled to a compensation
deduction larger than that allowed by respondent. Owensby &
Kritikos, Inc. v. Commissioner, 819 F.2d 1315, 1324 (5th Cir.
1987), affg. T.C. Memo. 1985-267.
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Last modified: May 25, 2011