- 21 -
1999-282. We must be persuaded that the purported compensation
was paid for services rendered by the employees/shareholders, as
opposed to a distribution of earnings to them that the payor
could not deduct. Mad Auto Wrecking, Inc. v. Commissioner, T.C.
Memo. 1995-153 (and the cases cited therein).
Reasonable compensation is determined by comparing the
compensation paid to an employee with the value of the services
performed in return. Such a determination is a question of fact
that is made as to each employee individually, rather than as to
the compensation paid to a group of employees collectively.
Pulsar Components Intl., Inc. v. Commissioner, T.C. Memo.
1996-129; Mad Auto Wrecking, Inc. v. Commissioner, supra. The
cases concerning reasonable compensation are numerous and usually
list many factors to be considered in making this factual
determination. As relevant herein, the factors include: (a) The
employee’s qualifications; (b) the nature, extent, and scope of
the employee’s work; (c) the size and complexity of the
employer’s business; (d) a comparison of salaries paid with the
employer’s gross and net income; (e) the prevailing general
economic conditions; (f) a comparison of salaries with
distributions to shareholders and retained earnings; (g) the
prevailing rates of compensation for comparable positions in
comparable companies; (h) the salary policy of the employer as to
all employees; (i) the amount of compensation paid to the
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011