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The $500,000 Bonus Paid in 1990
In EIC's notice of deficiency for 1990, respondent dis-
allowed a deduction for the $500,000 bonus paid to petitioner at
yearend. Respondent argues on brief that the bonus was excessive
and therefore not deductible as reasonable compensation under
section 162(a). EIC responds that petitioner, a key employee at
EIC, was instrumental in the corporation's success and entitled
to higher compensation. EIC therefore concludes that the bonus
was reasonable and fully deductible.
We agree with EIC that petitioner played an important role
in the corporation's financial success. Petitioner was a central
figure in managing the corporation and worked long hours to
increase its business. Nevertheless, on the basis of the record
before us, we are unable to conclude that EIC has successfully
demonstrated that the bonus was reasonable in amount.
EIC has not related the bonus to any duties performed by
petitioner. The record indicates that petitioner's administra-
tive functions with respect to EIC remained constant throughout
the years at issue, while petitioner's 1990 salary of $283,200
exceeded the salary he received in other years. Thus, the bonus
did not serve to compensate petitioner for any unusual activities
in connection with his administrative functions. Additionally,
no evidence was presented, nor any argument made, that this bonus
was derived from specific sales generated by petitioner.
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