- 20 - In the notice of deficiency, respondent disallowed $1,084,719 of the officer compensation deducted in 1995 (allowing $210,169) and disallowed $898,560 deducted in 1996 (allowing $201,205). On brief, respondent now contends that officer compensation in excess of $435,450 ($243,000 paid to Dennis and $192,450 to Curtis) in 1995 and in excess of $460,950 ($258,600 paid to Dennis and $202,350 to Curtis) in 1996 was unreasonable, was disguised dividends, and was not compensation for services Dennis and Curtis rendered to petitioner. B. Controlling Factors A taxpayer may deduct payments for compensation if the amount paid is reasonable and for services actually rendered. See sec. 162(a)(1). The reasonableness of compensation is a question of fact that must be answered by comparing each employee's compensation with the value of services that he or she performed in return. See RTS Inv. Corp. v. Commissioner, 877 F.2d 647, 650 (8th Cir. 1989), affg. per curiam T.C. Memo. 1987- 98; Charles Schneider & Co. v. Commissioner, 500 F.2d 148, 151 (8th Cir. 1974), affg. T.C. Memo. 1973-130; Estate of Wallace v. Commissioner, 95 T.C. 525, 553 (1990), affd. 965 F.2d 1038 (11th Cir. 1992). Where, as in this case, the corporation is controlled by the same employees to whom the compensation is paid, there is a lack of arm's-length bargaining. Special scrutiny must be given to bonus payments paid under suchPage: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next
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