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accept the compensation paid to [Theodore R.] Lynn;
(2) whether Lynn was paid according to a long-standing
and consistently applied contingent compensation
formula, and if so, whether his salary was reasonable
in light of this formula; (3) whether Lynn's
compensation compared favorably with the compensation
paid by similar companies for comparable services,
given the many roles Lynn played at Dexsil; and
(4) whether, after reconsideration of these factors,
the balance of factors has shifted in favor of Dexsil
such that it has met its burden of proving that Lynn's
compensation was reasonable. [147 F.3d at 103.]
By agreement of the parties, supplemental briefs were filed in
which they argue their respective positions on the above issues.
Background
In our prior Memorandum Findings of Fact and Opinion, T.C.
Memo. 1995-135, we concluded that $300,000 and $320,000 for the
fiscal years 1989 and 1990, respectively, was reasonable
compensation for Theodore R. Lynn (Lynn), the majority
shareholder, president, and a director of petitioner. We
disallowed petitioner's deductions, to the extent of $76,540 in
1989 and $168,000 in 1990, in excess of the amounts that we
determined to be reasonable. We agreed with petitioner that the
amount paid to Lynn's son, Timothy D. Lynn (T.D. Lynn), a
shareholder, vice president, and director, was reasonable. We
also disallowed in part a deduction claimed for compensation to
another son, Theodore B. Lynn (T.B. Lynn), and a deduction for
director's fees.
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