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clean room labels, in our opinion the $722,913 bonus payment to
him far exceeds a reasonable bonus. See, PMT, Inc. v.
Commissioner, T.C. Memo. 1996-303 (shareholder-employee entitled
to additional compensation of $400,000 for his prior invention of
corporation's new fabric product; new fabric accounted for a $10
million increase in the corporation's sales during the year in
issue and corporation also enjoyed a high return on equity for
that year).
F. Amount of Reasonable Compensation.
We consider the $156,000 salary Mr. Martin received to be
reasonable. As president, he managed a business that grossed
more than $4 million annually for its 1988 through 1990 fiscal
years. He had also received approximately the same annual salary
since at least 1985.
In addition, Mr. Martin should receive a bonus, as it had
been petitioner's practice to provide him a substantial portion
of his compensation in the form of an annual bonus tied to
petitioner's financial performance during the recent fiscal year.
We consider a 1990 bonus of $250,000 to him to be reasonable.
Although petitioner's business slightly declined for the 1990
fiscal year, the decline had been expected and was attributable
to factors beyond Mr. Martin's control. Moreover, petitioner
still grossed over more than $4.34 million for the fiscal year.
Also, as indicated previously, Mr. Martin is entitled to some
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