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Petitioner’s return on the fair market value of its
operating assets was 0.97 percent in 1993, 0.70 percent in 1994,
and 5.26 percent in 1995.
2. Petitioner’s Federal Income Tax Returns
Richard Schwaeber prepared and signed petitioner’s tax
returns from 1988 through the years at issue. Petitioner
attached Schedules E, Compensation of Officers, to its 1993,
1994, and 1995 returns. However, petitioner did not report the
percentage of time that its officers devoted to the business.
II. OPINION
A. Positions of the Parties
A taxpayer may deduct payments for compensation if the
amount paid is reasonable in amount and for services actually
rendered. See sec. 162(a)(1); Rutter v. Commissioner, 853 F.2d
1267, 1270-1271 (5th Cir. 1988), affg. T.C. Memo. 1986-407;
Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d 1315, 1322-
1323 (5th Cir. 1987), affg. T.C. Memo. 1985-267.
Petitioner paid Isidore Klein $352,000 in 1993 and $368,000
in 1994, and paid Steven Klein $500,400 in 1993, $450,400 in
1994, and $820,400 in 1995. Petitioner contends that those
amounts were reasonable and were for services they provided to
petitioner. Respondent contends that compensation petitioner
paid in excess of $405,250 for 1993, $392,157 for 1994, and
$451,284 for 1995 was unreasonable, was disguised dividends, and
was not for services to petitioner.
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