- 19 -
In light of respondent’s willingness to allow what Hakala
recommends for 1995, plus correction of Hakala’s mathematical
errors, we round the 1995 amount to $610,000.
We conclude that all of the amounts that would have been
reasonable compensation to Jack were intended by petitioner to be
compensation and not dividends.
C. Analysis
Section 162(a)(1)5 allows a deduction for the payment of
compensation, but only if the compensation is both (1) reasonable
in amount and (2) paid for personal services rendered. Paula
Construction Co. v. Commissioner, 58 T.C. 1055, 1058 (1972),
affd. without published opinion 474 F.2d 1345 (5th Cir. 1973);
sec. 1.162-7(a), Income Tax Regs. The question of reasonableness
is one of fact which must be resolved on the basis of all the
facts and circumstances in the case. Owensby & Kritikos, Inc.
v. Commissioner, 819 F.2d at 1323; Pepsi-Cola Bottling Co. of
Salina, Inc. v. Commissioner, 528 F.2d 176, 179 (10th Cir. 1975),
affg. 61 T.C. 564, 567 (1974); Estate of Wallace v. Commissioner,
5 SEC. 162. TRADE OR BUSINESS EXPENSES.
(a) In General.–-There shall be allowed as a deduction
all the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or
business, including--
(1) a reasonable allowance for salaries or other
compensation for personal services actually
rendered * * *
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