- 29 -
stipulated salaries, do not exceed a reasonable compensation for
the services rendered.” Sec. 1.162-9, Income Tax Regs.
Because petitioner’s place of business is in the State of
New York, and barring a stipulation to the contrary, any appeal
of this case would be to the Court of Appeals for the Second
Circuit. See sec. 7482(b)(1)(B). Therefore, under the doctrine
of Golsen v. Commissioner, 54 T.C. 742, 756-758 (1970), affd. 445
F.2d 985 (10th Cir. 1971), we must apply that court’s precedents
governing issues of reasonable compensation to the extent that
they contradict our precedents.
The question of whether compensation is reasonable is to be
resolved upon a consideration of all of the facts and
circumstances of the case. E.g., Home Interiors & Gifts, Inc. v.
Commissioner, 73 T.C. 1142, 1155 (1980). Numerous factors have
been used in determining the reasonableness of compensation, with
no single factor being determinative. See Rapco, Inc. v.
Commissioner, 85 F.3d 950, 954 (2d Cir. 1996), affg. T.C. Memo.
1995-128; Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d
1315, 1323 (5th Cir. 1987), affg. T.C. Memo. 1985-267. Those
factors considered include, but are not limited to: (1) the
employee’s role in the company, (2) comparison with other
companies, (3) the character and condition of the company, (4)
potential conflicts of interest, and (5) internal consistency in
compensation. Rapco, Inc. v. Commissioner, supra at 954-955;
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011