- 58 -
None of petitioner's employees other than Dennis and Curtis,
however, shared in the large distribution of profits petitioner
made at yearend. Cf. Home Interiors & Gifts, Inc. v.
Commissioner, 73 T.C. at 1159-1160 (compensation paid to the
taxpayer's shareholder-employees was reasonable in part because
the taxpayer had a longstanding practice of paying all its key
employees on the basis of commissions). Thus, petitioner's bonus
policy for its nonshareholder employees is not similar to the
bonus policy for Dennis and Curtis. Cf. id. Furthermore, the
bonuses were paid to Dennis and Curtis in the same proportion as
their stockholdings.
This factor indicates that the bonus was in part
compensation for services and in part a distribution of profits.
7. Compensation Paid in Prior Years
An employer may deduct compensation paid in a year for
services rendered in prior years. See Lucas v. Ox Fibre Brush
Co., 281 U.S. 115, 119 (1930); R.J. Nicoll Co. v. Commissioner,
59 T.C. 37, 50-51 (1972). To currently deduct amounts paid as
compensation for past undercompensation, a taxpayer must show
that it intended to compensate employees for past services from
current payments and must establish the amount of past
undercompensation. See Pacific Grains, Inc. v. Commissioner, 399
F.2d 603, 606 (9th Cir. 1968), affg. T.C. Memo. 1967-7; Estate of
Wallace v. Commissioner, 95 T.C. at 553-554.
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