- 59 - Petitioner contends that parts of the payments to Dennis and Curtis were for services rendered in prior years. Petitioner relies on its expert to establish the amount of past undercompensation. We have rejected Mr. Reilly's calculation of undercompensation paid to Dennis and Curtis from 1986 to 1996. We find that any undercompensation that may have occurred in earlier years was rectified prior to the years at issue. The record does not indicate that the compensation paid to Dennis and Curtis in 1995 and 1996 was attributable to services performed for petitioner in earlier years. This fact further indicates that part of the bonus was a distribution of profits and not compensation for services. 8. Comparison of Salaries Paid With Gross Income and Net Income Courts have compared compensation to gross and net income in deciding whether compensation is reasonable. See Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d at 1322-1323; Mayson Manufacturing Co. v. Commissioner, 178 F.2d 115 (6th Cir. 1949). In most cases, considering compensation as a percentage of net income is more probative than considering compensation as a percentage of gross receipts because compensation as a percentage of net income more accurately gauges whether a corporation is disguising the distribution of dividends as compensation. See Owensby & Kritikos, Inc. v. Commissioner, supra at 1325-1326.Page: Previous 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 Next
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