- 41 -
probative of a presence or absence of compensatory intent.” Id.
at 1246 n.4. In this case, Mrs. Harrison’s 46-percent stock
ownership interest (with the other 54 percent in the hands of
nonadverse family members) indicates the existence of a potential
conflict of interest. Moreover, there are several indications of
an intent to disguise profit distributions to Mrs. Harrison as
deductible salary payments: (1) Petitioner has never declared or
paid a dividend, see O.S.C. & Associates, Inc. v. Commissioner,
187 F.3d 1116, 1121 (9th Cir. 1999), affg. T.C. Memo. 1997-300;
(2) during the audit years, petitioner’s total deduction for
officer compensation, on average, equaled 92 percent of pretax
income before that deduction, and Mrs. Harrison’s compensation
alone averaged 35 percent of pretax income for that period, see
Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d at 1325-1326;
Pac. Grains, Inc. v. Commissioner, 399 F.2d at 607; O.S.C. &
Associates, Inc. v. Commissioner, T.C. Memo. 1997-300; (3)
officer compensation was determined after the close of the
taxable year, when profits for the year were either known or
could be estimated with reasonable accuracy, see Owensby &
Kritikos, Inc. v. Commissioner, supra at 1329; Ecco High
Frequency Corp. v. Commissioner, 167 F.2d 583, 585 (2d Cir.
1948), affg. a Memorandum Opinion of this Court; Rich Plan of N.
New England, Inc. v. Commissioner, T.C. Memo. 1978-514.
Petitioner attempts to discount the potential impact of any
circumstances indicative of disguised dividends or profit
Page: Previous 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 NextLast modified: May 25, 2011