- 18 -
The Board of Directors may, however, waive these
provisions in any particular instance.
During petitioner’s audit, respondent issued an information
document request (IDR) to Goertz, in his capacity as petitioner’s
authorized representative, asking him to state petitioner’s
reason for accumulating earnings. Goertz responded that the
accumulation related to the family lawsuit.
OPINION
1. Compensation
We decide first whether section 162(a)(1) allows petitioner
to deduct as reasonable compensation the bonuses paid to Emile
and Louise. Respondent determined that petitioner was not
entitled to deduct those bonuses under section 162(a)(1) because
they were not “reasonable”. Petitioner argues that the bonuses
were reasonable under the independent investor test set forth by
the Court of Appeals for the Seventh Circuit in Exacto Spring
Corp. v. Commissioner, 196 F.3d 833, 835 (7th Cir. 1999), revg.
Heitz v. Commissioner, T.C. Memo. 1998-220. Petitioner argues
that the bonuses also were reasonable under the multifactor test
set forth by the Court of Appeals for the Ninth Circuit in
Elliotts, Inc. v. Commissioner, 716 F.2d 1241, 1245-1248 (9th
Cir. 1983), revg. and remanding T.C. Memo. 1980-282. Petitioner
argues it paid the bonuses to Emile and Louise also intending to
compensate them for past services.
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011