- 9 -
bad debts adjustment to Mr. Blazick's 1992 allocation. Mr. Rosi
offered no explanation for these apparent manipulations.
Finally, the most persuasive evidence of petitioner's lack
of compensatory intent is the plan itself. Consistent with the
existence of disguised dividends, the plan applied only to
petitioner's shareholders, Messrs. Blazick and Richter, and
payments were expressly calculated with reference to their
proportion of stock ownership. See Elliotts, Inc. v.
Commissioner, supra at 1246-1247 & nn. 4, 7. Moreover, the plan
does not use the value of services rendered as the basis for
calculating the amount of compensation, but merely distributes
excess profits to Messrs. Blazick and Richter.
Generally, incentive compensation plans are designed to
increase the compensation to employees by some fraction of the
benefit the corporation derives from the employees' efforts. See
Elliotts, Inc. v. Commissioner, supra at 1248 (stating that
"Incentive payment plans are designed to encourage and compensate
that extra effort and dedication which can be so valuable to a
corporation."); cf. Kennedy v. Commissioner, 671 F.2d 167 (6th
Cir. 1982), revg. 72 T.C. 793 (1979) (concerning incentive
compensation equal to 52 percent of net profits); PMT, Inc. v.
Commissioner, T.C. Memo. 1996-303 (concerning incentive
compensation equal to 10 percent of the increase in sales over
the previous year's sales). As the benefit to the corporation
increases, the compensation to the employee increases.
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