340 F.2d 861, 1965 U.S. App. 65-1 U.S.
Tax Cas. (CCH) P9198; 15 A.F.T.R.2d (RIA) 241
CASE SYNOPSIS: Petitioner gaming club
sought review of an order from a tax court allowing an annual salary
of $ 10,000 plus 15 percent of petitioner's net income as a business
expense deduction. Petitioner had originally sought to deduct an
annual salary of $ 10,000 plus 20 percent of its net income as a
business expense deduction.
FACTS: Petitioner gaming club challenged an order allowing an annual salary of $ 10,000 plus 15 percent of petitioner's net income as a business expense deduction. Petitioner had originally sought to deduct an annual salary of $ 10,000 plus 20 percent of its net income as a business expense deduction. Petitioner contended that the full amount of the salary claimed in the tax returns should have been allowed as a business expense deduction.
FACTS: Petitioner gaming club challenged an order allowing an annual salary of $ 10,000 plus 15 percent of petitioner's net income as a business expense deduction. Petitioner had originally sought to deduct an annual salary of $ 10,000 plus 20 percent of its net income as a business expense deduction. Petitioner contended that the full amount of the salary claimed in the tax returns should have been allowed as a business expense deduction.
ANALYSIS:
The court affirmed the order, finding
petitioner's arguments to be without merit. The court explained that
under § 162(a)(1) of the Internal Revenue Code of 1954, only
"reasonable" compensation was deductible. The court further
explained that the disallowance of a deduction for an unreasonable
salary with resulting adverse tax effects had a regulatory effect to
the extent that it discouraged employers from disbursing as salaries
to employees what, if disbursed at all, should be distributed to such
employees or others as dividends or gifts.
CONCLUSION: The order allowing petitioner gaming club to deduct as a business expense an annual salary of $ 10,000 plus 15 percent of its net income was affirmed. The court found that only "reasonable" compensation was deductible under the Internal Revenue Code.
CONCLUSION: The order allowing petitioner gaming club to deduct as a business expense an annual salary of $ 10,000 plus 15 percent of its net income was affirmed. The court found that only "reasonable" compensation was deductible under the Internal Revenue Code.
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