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services which were directly responsible for petitioner’s
profitability.
E. Internal Consistency in Compensation
This factor focuses on whether the compensation was paid
pursuant to a structured, formal, and consistently applied
program. Elliotts, Inc. v. Commissioner, supra at 1247. Bonuses
not paid pursuant to such plans are suspect. Salaries paid to
controlling shareholders are also suspect if, when compared to
salaries paid to nonowner management, they indicate that the
amount of compensation is a function of ownership, not corporate
management responsibility. Id.
Bonuses paid to employees are deductible “when * * * made in
good faith and as additional compensation for services actually
rendered by the employees, provided such payments, when added to
the stipulated salaries, do not exceed a reasonable compensation
for the services rendered.” Sec. 1.162-9, Income Tax Regs. No
internal discrepancy exists when a company pays and deducts
compensation for services performed in prior years. Elliotts,
Inc. v. Commissioner, supra at 1248.
Financial stability was the crucial element in petitioner’s
growth strategy. To foster petitioner’s growth, from 1979
through 1992 petitioner either underpaid Mr. Reeves, petitioner’s
sole executive officer and manager, or did not pay him at all.
Petitioner retained Mr. Reeves’s compensation and used it to
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