Vitamin Village, Inc. - Page 26

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          services which were directly responsible for petitioner’s                   
               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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