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officers’ compensation was “‘excessive’” and “‘[exceeded] a
reasonable allowance for salaries or other compensation for
personal services actually rendered within the ambit of * * *
[section 162].’” Id. at 361-362. The Court of Appeals for the
Ninth Circuit concluded that the notice’s language apprised the
taxpayer of the Code section at issue, section 162, and
emphasized that the test of section 162 is two-pronged, requiring
that compensation be reasonable and for personal services
actually rendered. Id. at 362.
Unlike the notice of deficiency at issue in Nor-Cal
Adjusters, the notice in the present case did not expressly refer
to section 162 or make a specific determination as to whether Mr.
Menard’s compensation was for personal services actually
rendered. Even so, in a recent case, we indicated that
respondent need not specifically state the disguised dividend
theory in the notice of deficiency. In E.J. Harrison & Sons,
Inc. v. Commissioner, T.C. Memo. 2003-239, the Commissioner
determined that the amounts the taxpayer deducted for
compensation paid to its president were “unreasonable and
excessive”.32 For the first time on brief, the Commissioner
argued that the disallowed amounts were a disguised dividend.
32Our opinion in E.J. Harrison & Sons, Inc. v. Commissioner,
T.C. Memo. 2003-239, did not excerpt the language from the notice
of deficiency that explained the Commissioner’s disallowance of
deductions for officer compensation.
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