- 7 -
petitioner. Thus, we must determine whether petitioner is
entitled to deduct 90 percent of the compensation paid.
Citing petitioner’s payment of only one dividend over 16
years, respondent contends that the disallowed payments were not
reasonable compensation. Dividend history, however, is only one
of many factors in determining reasonableness of compensation.
See Estate of Wallace v. Commissioner, 95 T.C. 525, 553 (1990),
affd. 965 F.2d 1038 (11th Cir. 1992). During the years in issue,
Mr. Damron performed several functions for petitioner in numerous
roles (i.e., purchasing, selling, supervising, etc.). He worked
incessantly and exercised sound business judgment which had a
direct and significant impact on petitioner’s profitability. Mr.
Damron transformed petitioner’s business from a basic salvage
yard to a modern state-of-the-art showroom. Petitioner’s
facility, according to respondent’s expert, “is reported to be
the largest of its kind.” In addition, our analysis of the
return on equity in petitioner reveals that petitioner had a high
rate of return despite its failure to pay dividends. See
Elliotts, Inc. v. Commissioner, supra at 1244 (rejecting the
automatic dividend rule). Accordingly, Mr. Damron’s
qualifications; the nature, extent, and scope of his
responsibilities; and the size and complexities of petitioner’s
business all lead us to conclude that his compensation was
reasonable. See Estate of Wallace v. Commissioner, supra.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011