-29-
11. Compensation Paid in Prior Years
An employer may deduct compensation paid in a year for
services rendered in prior years. Lucas v. Ox Fibre Brush Co.,
281 U.S. 115, 119 (1930); R.J. Nicoll Co. v. Commissioner, 59
T.C. at 50-51. To currently deduct amounts paid as compensation
for past undercompensation, a taxpayer must show: (a) That it
intended to compensate employees for past services from current
payments, and (b) the amount of past undercompensation. Pacific
Grains, Inc. v. Commissioner, 399 F.2d 603, 606 (9th Cir. 1968),
affg. T.C. Memo. 1967-7; Estate of Wallace v. Commissioner, supra
at 553-554.
Petitioner's records show that Eberl's compensation in
fiscal years 1992 and 1993 was not catchup pay. The minutes for
the annual board meetings authorizing petitioner to pay Eberl's
salary and bonus for fiscal years 1992 and 1993 state that Eberl
was paid "for the current year" and do not indicate that any of
the payment was for prior years. See Pacific Grains, Inc. v.
Commissioner, supra (corporate president was not underpaid in
part because taxpayer's board did not state that some part of the
payments were for his prior services); H&A Intl. Jewelry, Ltd. v.
Commissioner, T.C. Memo. 1997-467 (pay was not catchup pay where
minutes from shareholder meetings showed that the compensation
for the current year was not intended to reward the employee's
efforts for prior years).
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