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3. Size and Complexities of Employer's Business
Courts have considered the size and complexity of a
taxpayer’s business in deciding whether compensation is
reasonable. Pepsi-Cola Bottling Co. v. Commissioner, 528 F.2d
176, 179 (10th Cir. 1975), affg. 61 T.C. 564 (1974).
Petitioner's is a highly specialized sales operation,
occupying a unique niche in its industry. There is no comparably
sized competitor. Most firms in the field are much smaller; a
few are larger. Herold's aggressive pursuit of large accounts
that can be serviced at a lower cost relative to volume, and his
development of a service-intensive, consultative selling style
have enabled petitioner to compete successfully with its
industry's giants and to develop relationships with 10 of the 20
largest national accounts in its field.
4. Comparison of Salaries Paid With Net and Gross Income
A comparison of sales and net income to amounts of
compensation may be important in deciding whether compensation is
reasonable. Mad Auto Wrecking, Inc. v. Commissioner, T.C. Memo.
1995-153.
The instant percentages are reasonable in light of Herold's
qualifications and the nature, extent, scope, and success of his
efforts. In 1992, his salary was 3.23 percent of gross receipts
and 27.67 percent of gross income. In 1993, his salary was 2.63
percent of gross receipts and 29 percent of gross income.
His salary was 92.56 percent and 92.78 percent of book net
income (before deducting his compensation), respectively. His
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