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50th
10th 25th percentil 75th 90th
Average percentilpercentil e percentilpercentil
e e (median) e e
Hourly $26.47 $15.27 $20.04 $24.62 $28.88 $42.39
wage
Annual 55,073 31,771 41,670 51,196 60,070 88,171
salary
For each year in issue, Rocky and Dean were each compensated
above the 90th percentile annual salary amount. Mr. Herber used
the 90th percentile as the starting point to determine the amount
of reasonable compensation for their services.
Mr. Herber determined that four additional factors should be
taken into consideration when determining whether the
shareholder-employees were overcompensated. The first factor
considers whether a shareholder-employee’s expertise enhanced the
corporation’s profitability. Mr. Herber determined, and we
agree, that Rocky’s and Dean’s prowess contributed to
petitioner’s profitability. The second factor considers a
shareholder-employee’s experience. We have already concluded
that both Dean and Rocky had significant and valuable experience.
The third factor considers the number of hours the shareholder-
employee dedicated to the taxpayer’s business. We have also
found that Rocky and Dean have both dedicated between 55 and 60
hours per week to petitioner’s business. This factor is
particularly significant because it appears that the average
hourly rate of $26.47 was simply calculated by dividing the
average annual wage of $55,073 by 52 weeks and then by 40 hours
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