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12. Whether Employee Guaranteed Employer's Debt
Courts have considered whether an employee personally
guaranteed his or her employer's debt in determining whether the
employee's compensation is reasonable. In certain situations, an
employee's personal guaranty of his or her employer's debt may
entitle the employer to pay a greater salary to the employee than
the employer would otherwise have paid. See Owensby & Kritikos,
Inc. v. Commissioner, supra at 1325 n.33; R.J. Nicoll Co. v.
Commissioner, supra at 51; see also Acme Constr. Co. v.
Commissioner, T.C. Memo. 1995-6; BOCA Constr. Inc. v.
Commissioner, T.C. Memo. 1995-5.
At a key point, when petitioner's economic outlook was grim,
Herold pledged his personal residence to secure a letter of
credit that was required by a potential supplier, Houston
Instruments. Securing Houston Instruments as a supplier was a
linchpin of Herold's three-pronged strategy. In addition to the
fact that Herold was willing to put his residence at risk to
ensure this strategy's success, Herold also personally guaranteed
other credit lines of $4 to $5 million, which were still in
effect during the subject years.
13. Absence of Pension Plan/Profit-Sharing Plan
Courts have considered the absence of a pension plan or a
profit-sharing plan in determining reasonable compensation.
Rutter v. Commissioner, 853 F.2d 1267, 1274 (5th Cir. 1988),
affg. T.C. Memo. 1986-407; Kennedy v. Commissioner, 671 F.2d at
174-175. Such an absence may allow the employer to pay the
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