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December 31, 1992 and 1993, Exacto held cash, cash equivalents,
and marketable securities in the amounts of $2,792,123 and
$3,129,900, respectively. Respondent determined that Mr. and
Mrs. Heitz had constructively received interest income in the
amounts of $87,056 and $106,903 for 1992 and 1993, respectively.
OPINION
Issue 1. Reasonable Compensation
Section 162(a)(1) provides for a deduction for ordinary and
necessary business expenses including a “reasonable allowance for
salaries or other compensation for personal services actually
rendered”. A two-prong test determines deductibility:
(1) Whether the amount of compensation is reasonable in relation
to services performed, and (2) whether the payment is in fact
purely for services rendered. Summit Publg. Co. v. Commissioner,
T.C. Memo. 1990-288; sec. 1.162-7(a), Income Tax Regs. The
inquiry into reasonableness is a broad one and generally subsumes
the inquiry into compensatory intent. Summit Publg. Co. v.
Commissioner, supra. Petitioner must show the reasonableness of
the compensation. Rule 142(a).
The reasonableness of compensation is a question of fact to
be answered by considering and weighing all facts and
circumstances of the particular case. Estate of Wallace v.
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