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determination of Jack’s bonuses and absence of any compensation
plan for Jack are indicia of an intent to distribute earnings
rather than pay compensation for services, and (3) the incentive
to avoid one of the two layers of income taxation of dividends.
Petitioner contends that the issue is not properly before
the Court in the instant case (see supra note 4), and devotes its
efforts to the reasonable compensation prong.
We agree with respondent that (1) the issue is properly
before us and (2) the evidence to which respondent draws our
attention points toward an intent to distribute earnings.
However, in the instant case this agreement with
respondent’s position does not result in any disallowance of
otherwise reasonable compensation.
In each year before us, substantially all of petitioner’s
payments to Jack were made by way of a bonus at the end of the
year. There is no testimony or other evidence that indicates
that the participants in the discussions--Jack and Sledge--had
one intention with regard to a portion of each bonus and a
different intention with regard to the remaining portion of each
bonus. Thus, one might contend that a contaminating intention
should result in disallowance of deductions for the entirety of
each bonus, or alternatively that the contamination was not great
enough to require disallowance of deductions for any part of each
bonus.
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