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A number of the factors enumerated by the Court of Appeals
for the Ninth Circuit weigh against EIC. EIC is a closely held
corporation, controlled by petitioner, which did not pay any
dividends for the year. This presents the textbook case of a
corporation with the opportunity to disguise nondeductible
corporate distributions of income as compensation. There is no
evidence to indicate that EIC paid any bonuses to any other
employees nor evidence to suggest that the bonus in question was
paid according to a structured, formal, and consistently applied
program. EIC has not put on any evidence, through expert testi-
mony or otherwise, that compares the compensation paid by EIC
with that paid by companies in similar industries for similar
services. Accordingly, we conclude that EIC has not met its
burden in demonstrating that compensation paid to petitioner in
excess of his $283,200 salary was reasonable in amount and
therefore find that the $500,000 bonus is not deductible under
section 162(a).
Issue 3. Loan or Constructive Dividend
During 1990, EIC made expenditures totaling $550,663 for
personal expenses of the Wangs. The amounts so expended were
recorded as loans to shareholders in EIC's general ledger.
Respondent determined that these payments did not constitute bona
fide loans and instead were constructive dividends to the Wangs.
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