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president and a member of the board of directors. In January
1997, Richard, Jr. became president of petitioner.
For the taxable year ended February 28, 1994, Richard Sr.’s
salary was $51,663 and Richard, Jr.’s salary was $66,897. For
the year in issue, Richard, Sr.’s salary was $260,378 and
Richard, Jr.’s salary was $112,599.
Richard, Sr. determined the compensation that petitioner
paid. Petitioner never paid dividends to any of its shareholders
from its inception to the tax year in issue. Petitioner provided
to Richard, Sr. a retirement plan, health insurance, life
insurance, disability insurance, and use of a vehicle.
Petitioner paid $50,000 into Richard, Sr.’s retirement plan each
year for 5 years from 1989 until 1993.
Petitioner filed a Form 1120, U.S. Corporation Income Tax
Return, for the taxable year ended February 28, 1995. Petitioner
claimed a deduction of $260,378 for compensation of Richard, Sr.
Respondent allowed $195,378 and disallowed the remaining $65,000.
The parties stipulated that “Richard Sr.’s annual salary for the
taxable year ended February 28, 1995 falls in the range of
salaries paid to presidents/chief executive officers of
comparable companies in the same industry during the taxable
year.”
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Last modified: May 25, 2011