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received compensation from Hickory of $100,000, $200,000, and
$100,000 during Hickory's 1992, 1993, and 1994 fiscal years,
respectively. Mr. Heitz’ salary from Hickory should be
considered in deciding whether his overall compensation was
reasonable.
E. Net Earnings of the Employer
A fifth factor to be considered concerns the net earnings of
the employer. The success of the business provides a basis for
increased compensation. Summit Publg. Co. v. Commissioner, T.C.
Memo. 1990-288. Exacto reported a $193,667 loss in FY 1993 and
$73,897 in taxable income in FY 1994. Respondent argues that
Exacto's performance, as indicated on its tax returns, does not
warrant the compensation that was paid to Mr. Heitz. We agree
that the financial success of a corporation is an important
factor in determining reasonable compensation. If we measure
that success on an after-tax basis in this case, we must consider
Exacto's concessions that increase taxable income and enhance its
financial performance.
Exacto conceded over $1 million in adjustments in each of
the taxable years at issue. The adjustments concern Exacto's
classification of capital expenditures as operating expenses,
inappropriate or erroneous inventory calculations, and
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