-27-
9. Petitioner's Compensation Policy for All Employees
Courts have considered the taxpayer's compensation policy
for its other employees in deciding whether compensation is
reasonable. Mayson Manufacturing Co. v. Commissioner, 178 F.2d
at 119; Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. at
1159. This factor focuses on whether the entity pays top dollar
to all of its employees, including both shareholders and
nonshareholders. Owensby & Kritikos, Inc. v. Commissioner, supra
at 1329-1330.
Petitioner offered no evidence that its other employees
(Eberl's wife and mother-in-law) were paid at or near the high
end of the compensation range. Although petitioner's adjusters
were not its employees, we recognize that petitioner paid them 70
percent of the fee it received from the insurance company,
compared to an industry norm of 60-65 percent. However, the
adjusters did not share in the large distribution of profits
petitioner made to Eberl at the end of the fiscal year. Thus,
petitioner's payment policy for its adjusters is not similar to
petitioner's payment policy for Eberl. Cf. Home Interiors &
Gifts, Inc. v. Commissioner, supra (compensation paid to the
taxpayer's shareholder-employees was reasonable in part because
the taxpayer had longstanding practice of paying all of its key
employees on the basis of commissions).
This factor favors respondent.
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