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compensation. Owensby & Kritikos, Inc. v. Commissioner, supra at
1329; Estate of Wallace v. Commissioner, 95 T.C. at 556.
Petitioner's management team met with Kassouf at the end of
petitioner's fiscal year to determine the annual bonuses to be
paid to petitioner's executives. This factor casts some doubt on
whether such payments were compensation. Trinity Quarries, Inc.
v. United States, 679 F.2d at 211.
5. Internal Consistency
Internal inconsistency in petitioner's treatment of payments
to employees may indicate that the payments to Ferguson were not
reasonable. Elliotts, Inc. v. Commissioner, 716 F.2d at 1247.
Petitioner had no formal program for awarding bonuses. Bonuses
that have not been awarded under a formal and consistently
applied program are suspect. Nor-Cal Adjusters v. Commissioner,
503 F.2d 359, 362 (9th Cir. 1974), affg. T.C. Memo. 1971-200.
However, it is permissible to pay and deduct compensation for
services performed in prior years. Lucas v. Ox Fibre Brush Co.,
281 U.S. 115, 119 (1930).
A. Compensation for Services in Prior Years
Kassouf, petitioner's accountant, testified that
approximately $190,000 of the $430,000 bonus payment in 1992
consisted of "shortage amounts" due to Ferguson from the 2 prior
years. The record does not support Kassouf's testimony. The
bonus that Ferguson received during the fiscal year ending 1992
was for services rendered during that year.
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