- 10 -10
FYE Sales Total Conceded by
Aug. 31 Salary Commissions Bonus Compensation Respondent
1990 $441,104 $167,493 $100,000 $708,597 $550,000
1991 603,926 139,392 120,000 863,318 600,000
1992 610,459 117,364 430,000 1,157,823 750,000
OPINION
Section 162(a)(1) allows a corporation to deduct "a
reasonable allowance for salaries or other compensation for
personal services actually rendered" as a business expense. To
come within the ambit of section 162(a)(1), the compensation must
be both reasonable in amount and in fact paid purely for
services. Sec. 1.162-7(a), Income Tax Regs. Although framed as
a two-prong test, the inquiry under section 162(a)(1) generally
has turned on whether the amounts of the purported compensation
payments were reasonable. Elliotts, Inc. v. Commissioner, 716
F.2d 1241, 1243-1244 (9th Cir. 1983), revg. and remanding T.C.
Memo. 1980-282. What constitutes reasonable compensation to a
corporate officer is a question of fact to be determined from all
the facts and circumstances of a case. Charles Schneider & Co.
v. Commissioner, 500 F.2d 148, 151 (8th Cir. 1974), affg. T.C.
Memo. 1973-130; Estate of Wallace v. Commissioner, 95 T.C. 525,
553 (1990), affd. 965 F.2d 1038 (11th Cir. 1992). Petitioner has
the burden of proving that the payments to Ferguson were
reasonable. Rule 142(a). Respondent has conceded that
petitioner is entitled to a deduction for compensation paid to
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