- 12 - particular case. See Elliotts, Inc. v. Commissioner, supra at 1246; Haffner’s Serv. Stations, Inc. v. Commissioner, supra. This test allows us to decide whether the amount of compensation paid to petitioner’s shareholder-employees would have been the same had they engaged in an arm’s-length negotiation. See also Heil Beauty Supplies, Inc. v. Commissioner, supra at 194. One important inquiry in applying this test is whether the corporation’s shareholders received a fair return on their investments. See Rapco, Inc. v. Commissioner, supra at 955. In performing our analysis, we generally review each shareholder-employee’s compensation separately because whether his salary was reasonable depends on the services he performed. See RTS Inv. Corp. v. Commissioner, supra. In this case, we shall review Dean’s and Rocky’s salaries concurrently because they performed similar services for petitioner. II. Burden of Proof Under Rule 142(a), petitioner has the burden of proving that the compensation paid to its shareholder-employees was reasonable for deduction purposes. See Welch v. Helvering, 290 U.S. 111, 115 (1933). Section 7491(a) provides a taxpayer with the opportunity to shift the burden of proof to the Commissioner under specific circumstances. To shift the burden of proof, a taxpayer must have complied with all the requirements in section 7491(a). See Higbee v. Commissioner, 116 T.C. 438 (2001); E.J.Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
Last modified: May 25, 2011