- 40 -
H. Petitioner’s Salary Policy as to All Employees
Courts have considered the salary policy of the taxpayers as
to all employees (sometimes referred to as internal consistency)
in determining whether its shareholder-employees received
reasonable compensation. See Charles Schneider & Co. v.
Commissioner, 500 F.2d at 152; Home Interiors & Gifts, Inc. v.
Commissioner, 73 T.C. at 1159. This factor is probative because
it questions whether the shareholder-employees, because of their
status as such, were compensated differently from petitioner’s
other employees. See Owensby & Kritikos, Inc. v. Commissioner,
819 F.2d at 1329. For example, a reasonable, longstanding, and
consistently applied compensation plan is evidence of reasonable
compensation. See Elliotts, Inc. v. Commissioner, 716 F.2d at
1247.
In this case, petitioner paid bonuses to its non-
shareholder-employees and shareholder-employees. The bonuses
that the nonshareholders received were not paid annually,
appeared never to exceed their respective annual compensation,
were relatively insignificant in amount, and were not part of a
longstanding, consistently applied compensation plan.
Conversely, the bonuses paid by petitioner to its
shareholder-employees were paid annually (except that Darle did
not receive a bonus in 1997, 1998, or 1999), and they often
exceeded each shareholder-employee’s base annual salary. More
Page: Previous 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 NextLast modified: May 25, 2011