Damron Auto Parts, Inc. - Page 7

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          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.                  

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