- 25 -                                         
          remanding on other grounds T.C. Memo. 1980-282; see also Owensby            
          & Kritikos, Inc. v. Commissioner, 819 F.2d at 1327.                         
               This factor favors respondent.                                         
               3.   Internal Consistency in Compensation:  Consistency of             
                    the Compensation System Throughout the Company                    
               Inconsistency of the compensation system throughout the                
          ranks of the company may suggest that the employee’s compensation           
          is not reasonable.  See Rapco, Inc. v. Commissioner, 85 F.3d at             
          954.                                                                        
               Isidore and Steven Klein paid themselves and Jeffrey                   
          Schwaeber generously.                                                       
               Petitioner contends that it paid all of its employees at or            
          above market rate salaries.  We disagree.  Petitioner presented             
          no persuasive evidence that it paid all of its employees at or              
          above market rate salaries.  On brief, petitioner concedes that             
          it did not have a bonus program during the years in issue.  There           
          is no evidence that any of petitioner’s employees other than                
          Isidore and Steven Klein shared in the large distribution of                
          profits petitioner made at yearend in 1993, 1994, and 1995.  Cf.            
          Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. 1142, 1159-           
          1160 (1980) (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.                      
Page:  Previous   15   16   17   18   19   20   21   22   23   24   25   26   27   28   29   30   31   32   33   34   NextLast modified: May 25, 2011