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provided such payments, when added to the stipulated salaries, do
not exceed a reasonable compensation for the services rendered."
Sec. 1.162-9, Income Tax Regs.
Whether amounts paid as salary bonuses are to be treated as
reasonable and as paid for services rendered constitutes a
factual question. American Intl Coal Co., Inc. v. Commissioner,
T.C. Memo. 1982-204, affd. without published opinion 709 F.2d
1490 (3d Cir. 1983).
Many factors are to be considered in determining whether
compensation should be treated as reasonable in amount. Mayson
Manufacturing Co. v. Commissioner, 178 F.2d 115, 119 (6th Cir.
1949), remanding a Memorandum Opinion of this Court. Where
earnings of a corporation are not dependent upon efforts of a
large number of employees but are primarily dependent upon
efforts of a few key individuals and where the retention of these
individuals in the employ of the corporation is necessary to its
continued successful operation, the use of a percentage of
profits may be a valid manner to compute a reasonable level of
compensation for services rendered. In Foos v. Commissioner,
T.C. Memo. 1981-61, we treated compensation measured by
90 percent of net corporate profits as not reasonable, but we
treated compensation measured by 65 percent of net corporate
profits as reasonable.
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