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inappropriate or erroneous deduction of certain bonuses. After
these concessions, Exacto's income was over $1 million in each of
the taxable years at issue. That level of income in each year
would have been after taking into account Mr. Heitz’
compensation, no part of which was conceded by petitioner.
F. External Comparison
The sixth factor involves a comparison of the employee's
salary with salaries paid by similar companies for similar
services. Industry standards for compensation are important in
determining reasonable compensation. Owensby & Kritikos, Inc. v.
Commissioner, 819 F.2d 1315, 1330 (5th Cir. 1987), affg. T.C.
Memo. 1985-267; sec. 1.162-7(b)(3), Income Tax Regs.
Both respondent and petitioner offered expert testimony and
written opinions on the level of reasonable compensation for an
executive in a position comparable to Mr. Heitz’. Both experts
reached conclusions favorable to the party that had engaged their
services, and their reports were designed to support their
conclusions. Respondent's expert used inappropriate or
unsuitable data to reach a result that understates reasonable
compensation, while petitioner's expert applied an inappropriate
or unsuitable technique to reach a result that overstates
reasonable compensation.
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