Opinion ID: 489299
Heading Depth: 2
Heading Rank: 8

Heading: The Amalgam of the Factors

Text: 68 Based on a comparison to the $10-30 million in revenue category and after considering all of the other factors, the Tax Court concluded that reasonable compensation for Mr. Owensby and Mr. Kritikos was the average amount the highest paid executive could expect to earn, according to the taxpayers' experts, for an outstanding performance for a company in the $10-30 million in revenue category--$546,376 in 1978 and $560,065 in 1979. 69 We conclude that the Tax Court's decision is not clearly erroneous. Although a different finder of fact might have concluded that the compensation was reasonable, a review of the evidence indicates that the Tax Court's decision is supported by the record, and we are not left with the definite and firm conviction that a mistake has been committed. 70 The individual taxpayers were highly qualified and largely responsible for the tremendous success of the corporations in a highly specialized and complex field. And even after making the compensation payments to the shareholders, the corporations earned an impressive return on equity. On the other hand, the burden of proof is on the taxpayers. Mr. Owensby and Mr. Kritikos were controlling shareholders and were paid in direct proportion to their stockholdings. The corporations paid no dividends during the years at issue and paid a large portion of net income to their shareholders as compensation. The corporations on a combined basis had revenues of approximately $20 million in 1978 and $25.5 million in 1979. Although the companies paid their nonshareholder-employees well, the highest paid of these employees received only a fraction of the amount paid to the average shareholder-employee. Given this record and given that the Tax Court accepted the methodology of the taxpayers' experts, the court was therefore justified in limiting reasonable compensation to the amounts calculated by the taxpayers' own expert as reasonable compensation for an outstanding performance by the highest paid executive working for a company in the $10-30 million in revenue category, $546,376 and $560,065 in 1978 and 1979 respectively. On the record before us, the Tax Court's decision that the compensation paid to Mr. Owensby and Mr. Kritikos--$853,971 to each in 1978 and $843,079 in 1979--was in part unreasonable is therefore not clearly erroneous.