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9. Employer's Salary Policy As to All Employees
Courts have considered salaries paid to other employees of a
business in deciding whether compensation is reasonable.
Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. at 1159. We
look to this factor to determine whether Messrs. Bennett and Sokol
were compensated differently than petitioner's other employees
solely because of their status as shareholders.
Petitioner deducted total salaries of $4,498,328, $5,203,045,
and $5,197,408 in fiscal years 1990, 1991, and 1992, respectively.
As a percentage of total salaries paid, Messrs. Bennett and Sokol
received 60.02 percent in 1990, 51.89 percent in 1991, and 39.45
percent in 1992, even though they constituted less than 1 percent
of petitioner's employees. Respondent contends that these figures
constituted a significant proportion of petitioner's total salary
costs.
These percentages do not necessarily indicate that the level
of compensation paid to Messrs. Bennett and Sokol was a function of
ownership rather than management responsibility. A reasonable,
longstanding, and consistently applied compensation plan,
negotiated at arm's length, for example, is evidence that
compensation is reasonable. Owensby & Kritikos, Inc. v.
Commissioner, 819 F.2d at 1327.
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