- 17 -
reasonable compensation for the services rendered.” Sec. 1.162-
9, Income Tax Regs.8 Generally, courts have focused on the
reasonableness requirement in determining deductibility.
Elliotts, Inc. v. Commissioner, 716 F.2d 1241, 1243-1244 (9th
Cir. 1983), revg. and remanding T.C. Memo. 1980-282.
The reasonableness of compensation is a question of fact to
be answered by considering all facts and circumstances of the
particular case. Pepsi-Cola Bottling Co. of Salina, Inc. v.
Commissioner, 528 F.2d 176, 179 (10th Cir. 1975), affg. 61 T.C.
564 (1974); Estate of Wallace v. Commissioner, 95 T.C. 525, 553
(1990), affd. 965 F.2d 1038 (11th Cir. 1992). Petitioner has the
burden of showing that the amount it deducted as compensation was
reasonable, and that it is entitled to a compensation deduction
larger than that allowed by respondent. Rule 142(a); Pepsi-Cola
Bottling Co. of Salina, Inc. v. Commissioner, supra at 179; Nor-
Cal Adjusters v. Commissioner, 503 F.2d 359, 361 (9th Cir. 1974),
affg. T.C. Memo. 1971-200.9
8In the notice of deficiency, respondent did not adjust the
$238,000 of bonuses paid to Mr. Myers and Mrs. Myers for the 1995
and 1996 fiscal years that petitioner deducted on its fiscal year
1996 return. However, the total compensation that was paid to
Mr. and Mrs. Myers during the 1996 fiscal year in issue included
these bonuses. Accordingly, in evaluating the reasonableness of
the salaries petitioner paid and deducted for Mr. Myers and Mrs.
Myers, we consider the total compensation they received,
including bonuses.
9The Internal Revenue Service Restructuring and Reform Act
of 1998 (RRA), Pub. L. 105-206, sec. 3001(a), 112 Stat. 685, 726-
727, enacted sec. 7491 to shift the burden of proof to respondent
(continued...)
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011