F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAY 4 2001
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
EBERL’S CLAIM SERVICE, INC.,
Petitioner - Appellant,
v.
No. 99-9033
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
Appeal from the United States
Tax Court
(T.C. No. 12385-97)
Mark R. Kravitz (Joseph A. Sanfilippo, Jr., Wiggin & Dana, New Haven,
Connecticut and John D. Moats, Englewood, Colorado, with him on the briefs),
Wiggin & Dana, New Haven, Connecticut, for the Petitioner-Appellant.
Joan I. Oppenheimer (Gilbert S. Rothenberg with her on the brief), Tax Division,
Department of Justice, Washington, D.C., for the Respondent-Appellee.
Before LUCERO, McKAY and MURPHY, Circuit Judges.
LUCERO, Circuit Judge.
The Commissioner of Internal Revenue determined deficiencies and
additions to tax for Eberl’s Claim Service, Inc.’s (“taxpayer”) fiscal years 1992
and 1993, 1 in which taxpayer sought to deduct $4,340,000 and $2,080,000,
respectively, for compensation to Kirk J. Eberl (“Eberl”). Contending that those
amounts were excessive, the Commissioner asserts Eberl’s salary constituted
disguised dividend payments that should have been subject to taxation. The Tax
Court found taxpayer could deduct compensation up to $2,340,000 and
$1,080,000 and was not liable for penalties. Taxpayer appeals; exercising
jurisdiction under I.R.C. § 7482, we affirm.
I
Eberl is the founder, president, and sole shareholder of taxpayer, a
Colorado corporation. Taxpayer is a catastrophic claims adjusting company that
provides the services of independent claims adjusters to major insurance
companies. Insurance companies rely on in-house adjusters to process most
claims, but during busy periods following major disasters they turn to contractors
like taxpayer for additional help.
Taxpayer was founded as a sole proprietorship in 1987 and incorporated in
1988. Eberl made an initial capital investment of $500 and has not invested any
additional capital. He was the only member of taxpayer’s board of directors from
June 8, 1988 through the years in question. His wife, Grace Eberl, has been the
1
Taxpayer’s fiscal year 1992 ended on May 31, 1993, and its fiscal year
1993 ended on May 31, 1994.
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company’s corporate secretary and treasurer since incorporation. Eberl has
always been solely responsible for taxpayer’s business decisions and managerial
functions (with the exception of accounting), including marketing, subcontracting
with individual claims adjusters, and maintaining relationships with insurance
companies that use taxpayer’s services. During the years in question, Eberl
worked long hours, occasionally from 4:30 a.m. until midnight, and was required
to be away from home about seventy-five percent of the time. His superior
qualification for his position and his indispensability to taxpayer’s business are
undisputed, as is the demanding nature of his work.
Eberl’s July 19, 1988 employment agreement with taxpayer did not fix the
amount of his compensation or a formula for its computation, though taxpayer’s
attorney, certified public accountant, and financial adviser had discussed with
Eberl his desire to be compensated at twenty to twenty-five percent of taxpayer’s
gross receipts each year. However, a 1992 amendment loosely tied Eberl’s salary
to gross revenues, providing that “[t]he Corporation shall pay [Eberl] a
commission based upon the gross revenue collected for services performed for
casualty insurance companies who contract with the Corporation due to
Employee’s efforts.” (Jt. Ex. 13-M.) The corporation paid regular salaries to
only a small number of additional employees. Grace Eberl received an annual
salary of $120,000, and beginning in 1991 her mother drew a salary as an office
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manager. Neither received bonuses. The only other employees during the period
in question were part-time clerical staff. Although independent claims adjusting
companies typically pay their adjusters sixty to sixty-five percent of the fee
charged to an insurance company, taxpayer paid its adjusters seventy percent.
Operating results and Eberl’s compensation from incorporation through the
fiscal years at issue were as follows:
Year Eberl’s Gross Net Taxable Eberl’s Salary
Salary ($) Receipts ($) Profits ($) income ($) as a % of Gross
Receipts
1988 40,000 282,682 (3609) (3609) 14.1
1989 608,000 4,141,872 0 (3609) 14.7
1990 300,000 2,190,835 (36,233) (39,842) 13.7
1991 190,000 2,193,708 2861 (36,981) 8.7
1992 4,340,000 20,438,803 22,439 (14,542) 21.2
1993 2,080,000 9,168,585 41,935 27,393 22.7
(Appellee’s Br. at 9, 11.) Annual and cumulative retained earnings in those years
were as follows:
Year Annual ($) Cumulative ($)
1988 (4655) (4655)
1989 (5750) (10,405)
1990 (41,276) (51,681)
1991 4650 (47,031)
1992 16,748 (30,283)
1993 37,098 6815
Eberl’s Claim Serv., Inc. v. Comm’r , No. 12385-97, 77 T.C.M. (CCH) 2336, slip
mem. at 12 (T.C. Memo. June 25, 1999). The company has never paid a
dividend.
-4-
Due in part to an extraordinary number of major catastrophes, 1992 and
1993 were lucrative years for independent claims adjusters. Five of the ten most
costly insured catastrophes in the United States occurred during taxpayer’s fiscal
years 1992 and 1993, including Hurricane Andrew, the Northridge earthquake,
severe winter storms in twenty states, Hurricane Iniki, and brush fires in
California. The sharp increase in gross receipts in those two years reflects the
frequency with which insurance companies turned to taxpayer to supply
independent adjusters to process the unusually large number of claims.
Faced with the question whether Eberl’s compensation in 1992 and 1993
was reasonable in amount, the Tax Court concluded that “a substantial part of
Eberl’s compensation was a disguised dividend and not purely for services.” Id.
at 32. Although the Commissioner’s expert, James F. Carey, stated in his report
that compensation of $500,000 and $400,000 would have been reasonable in
those two years, he acknowledged at trial that taxpayer could have paid Eberl
$2,340,000 in 1992 and $1,080,000 in 1993 while keeping retained earnings of
$2 million and $1 million—figures he called reasonable. Based on that
assessment, the Tax Court determined that reasonable compensation to Eberl
could have been as much as $2,340,000 in 1992 and $1,080,000 in 1993 and that
payments above those amounts were taxable as dividends.
-5-
Finally, the Tax Court rejected the Commissioner’s determination that
taxpayer was liable for a penalty under I.R.C. § 6662 for substantial
understatement of tax owed. The court found that Eberl reasonably believed that
compensation equal to twenty to twenty-five percent of gross receipts would be a
reasonable salary and that he believed his accountant, who signed taxpayer’s tax
returns, agreed. See I.R.C. § 6664(c)(1) (providing that the § 6662 penalty does
not apply if the taxpayer shows that there was reasonable cause for the
underpayment and that taxpayer acted in good faith).
II
“We review tax court decisions ‘in the same manner and to the same extent
as decisions of the district courts in civil actions tried without a jury.’” Kurzet v.
Comm’r , 222 F.3d 830, 833 (10th Cir. 2000) (quoting I.R.C. § 7482(a)(1)). The
reasonableness of an expense is a question of fact subject to clear error review.
Pepsi-Cola Bottling Co. v. Comm’r , 528 F.2d 176, 179 (10th Cir. 1976).
A. Determination of reasonableness under I.R.C. § 162(a)(1)
A taxpayer may deduct “a reasonable allowance for salaries or other
compensation for personal services actually rendered.” I.R.C. § 162(a)(1). The
taxpayer bears the burden of establishing that its expenses are reasonable under
§ 162. Kurzet , 222 F.3d at 834; Pepsi-Cola Bottling , 528 F.2d at 179.
-6-
For closely held corporations, the identity between shareholders and
employees creates an incentive to distribute earnings in the form of compensation
rather than in the form of dividends. Compensation is a deductible expense,
while dividend payments are subject to the two-tier system of corporate taxation.
Absent a third-party interest in limiting compensation for the sake of
profitability, dividends may be disguised as salary and channeled out of the
corporation tax-free. Because of the potential for avoiding taxation in this
manner, “special scrutiny should be given to compensation paid by a corporation
whose stock is closely held.” Pepsi-Cola Bottling , 528 F.2d at 179; see also
Treas. Reg. § 1.162-7(b)(1) (noting that “[a]n ostensible salary paid by a
corporation may be a distribution of a dividend on stock,” particularly “in the
case of a corporation having few shareholders, practically all of whom draw
salaries”). The requirement that compensation be in a reasonable amount and for
services actually rendered ensures that a corporation may not improperly lessen
its tax burden by characterizing earnings distributions as salary.
In assessing whether an expense was reasonable under § 162(a)(1), this
Court employs the traditional multi-factor test of reasonableness outlined in
Pepsi-Cola Bottling , 528 F.2d at 179. When determining the reasonableness of a
salary, “[t]he situation must be considered as a whole, with no one factor being
decisive.” Id. The factors to be considered have been “stated innumerable
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times” but never reduced to a definitive list. Id. (listing nine factors used to
determine reasonableness of compensation); see also Owensby & Kritikos, Inc. v.
Comm’r , 819 F.2d 1315, 1323 (5th Cir. 1987) (applying a test consisting of eight
factors); Elliotts, Inc. v. Comm’r , 716 F.2d 1241, 1245 (9th Cir. 1983) (applying
a test consisting of five broad categories of factors); Mayson Mfg. Co. v.
Comm’r , 178 F.2d 115, 119 (6th Cir. 1949) (applying a test consisting of nine
factors); Foos v. Comm’r , 41 T.C.M. (CCH) 863, 878–79 (1981) (applying a test
consisting of twenty-one factors); Treas. Reg. § 1.162-7(b)(3) (stating that
salaries are deductible in an amount that is “reasonable under all the
circumstances”).
Relying primarily on what it could discern from the testimony of the
parties’ experts, the Tax Court examined twelve factors to determine
reasonableness:
(1) The employee’s qualifications; (2) the nature and scope of the
employee’s work; (3) the size and complexity of the business;
(4) general economic conditions; (5) the employer’s financial
condition; (6) a comparison of salaries paid with sales and net
income; (7) distributions to shareholders and retained earnings;
(8) whether the employee and employer dealt at arm’s length, and if
not, whether an independent investor would have approved the
compensation; (9) the employer’s compensation policy for all
employees; (10) the prevailing rate of compensation for comparable
positions in comparable companies; (11) compensation paid in prior
years; and (12) whether the employee guaranteed the employer’s
debt.
Eberl’s Claim Serv. , slip mem. at 14–15 (citations omitted).
-8-
The Tax Court weighed the evidence in light of those factors and
concluded taxpayer had not carried its burden of showing Eberl’s compensation
was reasonable. Taxpayer challenges the court’s resolution of several individual
components of the multi-factor test as well as its ultimate determination of what
level of compensation would have been reasonable. Because substantial evidence
supported the findings and ultimate determination of the Tax Court, we conclude
its decision was not clearly erroneous.
1. Compensation In Prior Years
Citing an arrangement that allegedly provided for annual compensation of
twenty to twenty-five percent of gross receipts, taxpayer asserts that Eberl’s
spiked salary in 1992 and 1993 did not represent a significantly higher proportion
of gross receipts than in prior years. According to taxpayer, the alleged
contingent compensation arrangement should have been viewed as evidence that
his salary was reasonable.
In Pepsi-Cola Bottling , the taxpayer contended “that a compensation
arrangement does not lose its good faith character because its automatic operation
in later years under favorable circumstances results in high compensation,” 528
F.2d at 181, and cited a Treasury regulation generally approving the deduction of
salaries paid pursuant to contingent compensation arrangements, see Treas. Reg.
§ 1.162-7(b)(2). Holding that the Tax Court properly declined to adopt the
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taxpayer’s logic in that case, we noted that “the premise of the [Treasury]
regulation is a free bargain made solely for the purpose of securing the services
of the employee.” Pepsi-Cola Bottling , 528 F.2d at 181; see also Elliotts , 716
F.2d at 1247 (holding that only a longstanding, consistently applied
compensation plan negotiated at arm’s length is evidence of reasonableness).
In the case on appeal, as in Pepsi-Cola Bottling , a longstanding,
consistently applied plan negotiated at arm’s length “is not actually present, since
the arrangement was in substance an agreement between [Eberl], acting as the
predominant shareholder of the company, and [him]self, acting as an individual
employee.” 2
528 F.2d at 181.
This Court has treated contingent compensation schemes as inherently
suspect in cases like this one:
Indeed, the reason for the scrutiny of contingent compensation
arrangements in close corporations is the suspicion that deductible
salary expenses are a disguise for non-deductible profit
distributions. . . . The non-payment of a dividend in conjunction
with a contingent compensation scheme for a controlling shareholder
has frequently been recognized as an indication that unreasonable
and excessive compensation is being paid.
2
As taxpayer acknowledges, “there was no formal written documentation
of such formula,” and the Tax Court did not find that such an arrangement
existed, written or unwritten. (Appellant’s Br. at 48.) No contingent
compensation formula was mentioned in Eberl’s written employment agreement or
in the minutes of taxpayer’s annual board meetings, at which Eberl set the amount
of his compensation. Mark Lehrner, taxpayer’s CPA, testified that “[t]here was
never an actual, definitive—actual 20 percent formula.” (I Trial Tr. at 82.)
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Id. at 182–83 (citations omitted).
Moreover, if there was a contingent compensation arrangement, it was not
consistently applied: Eberl determined the level of his salary at the end of each
year, when taxpayer’s gross receipts and overhead were known, enabling him to
“receive virtually all of [taxpayer’s] net profits as compensation.” 3
Eberl’s Claim
Serv. , slip mem. at 22; see also Golden Constr. Co. v. Comm’r , 228 F.2d 637,
639 & n.1 (10th Cir. 1955) (holding that a salary paid to a president and principal
shareholder was unreasonable when he set his own salary at the end of the year).
Whether or not a formula was used, Eberl’s salary depleted taxpayer of almost all
of its value and was plausibly viewed as unreasonable on that ground alone. 4
2. General Economic Conditions
Taxpayer argues that the factor designated as “general economic
conditions” was incorrectly resolved in the Commissioner’s favor. (Appellant’s
Br. at 53.) While taxpayer attributes its dramatically increased revenues in 1992
and 1993 to Eberl’s effectiveness as a manager and marketer, the Tax Court
correctly observed that the company “benefited [sic] tremendously from the large
3
As the table above shows, Eberl’s salary as a percentage of gross receipts
varied from as low as 8.7% to as high as 22.7%.
4
“A bonus contract that might be reasonable if executed with an executive
who is not a controlling shareholder may be viewed as unreasonable if made with
a controlling shareholder, since incentive to the stockholder to call forth his best
effort would not be needed.” Pepsi-Cola Bottling, 528 F.2d at 182.
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amount of catastrophes (5 of the 10 largest in history) during its fiscal years 1992
and 1993.” Eberl’s Claim Serv. , slip mem. at 19. As the Commissioner points
out, taxpayer had its largest gross receipts in the same year as the nation’s most
costly catastrophe, Hurricane Andrew.
Although Carey, the Commissioner’s expert, concluded in his report that
general economic conditions were neutral indicators of reasonableness, it was not
clear error for the Tax Court to take a different view in light of the evidence. See
Pepsi-Cola Bottling , 528 F.2d at 180–81 (concluding the Tax Court may
disregard even the persuasive evidence of expert witnesses and draw inferences
from other evidence). Moreover, Carey changed his assessment of this factor to a
“minor negative” after viewing a stipulation concerning catastrophic losses from
1971 through 1995. (II Trial Tr. at 379.) For his part, taxpayer’s expert, Albert
S. Williams, addressed economic conditions only by noting that “[r]evenues were
directly correlated to [Eberl’s] marketing efforts and results, the need for
services, i.e., catastrophes , and the ability to provide the service.” (Pet’r’s Ex. 49
at 3 (emphasis added).)
The Tax Court emphasized that general economic conditions are relevant
only as far as they help to discern “the extent of the employee’s effect on the
company.” Eberl’s Claim Serv. , slip mem. at 18; see also Alpha Med., Inc. v.
Comm’r , 172 F.3d 942, 948 (6th Cir. 1999) (“Examining economic conditions
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during the tax years in question helps to determine whether the success of a
business is attributable to general economic conditions as opposed to the efforts
and business acumen of the employees.”). It was not clear error for the Tax
Court to determine that taxpayer’s elevated receipts in 1992 and 1993 were a
product primarily of an expanded market for its services and only secondarily of
“the efforts by Kirk Eberl to position [taxpayer]” to take advantage of that
market. (Appellant’s Br. at 54.)
3. Compensation of Other Employees
Taxpayer’s contention that its generous compensation of its independent
adjusters should have weighed in its favor is unconvincing. As the Tax Court
correctly recognized, taxpayer’s “payment policy for its adjusters is not similar to
[taxpayer’s] payment policy for Eberl” because the adjusters were independent
contractors who received a flat-rate commission five to ten percent above the
industry norm while Eberl’s “salary” amounted to a year-end distribution of net
income. 5 Eberl’s Claim Serv. , slip mem. at 27.
Taxpayer’s attempt to contrast the independent adjusters’ situation to
Eberl’s betrays the weakness of its position. By arguing that “[t]he independent
contractors took absolutely no risk and therefore would not deserve to share in
5
In fiscal year 1992, Eberl’s compensation was 99.5% of taxpayer’s net
income before deduction for taxes, net operating losses, and compensation. In
fiscal year 1993, that number was 98%.
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the company’s profits ,” taxpayer all but admits that Eberl’s large salary was not
compensation for services, but a disguised distribution of profits—undoubtedly a
reward for the risk he bore, but a reward in the nature of a taxable return on his
investment. (Appellant’s Br. at 56 (emphasis added); see also id. (“Nor would it
have been sensible for [taxpayer] to use a compensation plan that shared [its]
profits with its independent contractors as the Tax Court appeared to suggest.”
(emphasis added)).) In his opening statement at trial, the Commissioner’s
counsel stated
[Eberl] deserves the millions of dollars that he received from
[taxpayer] during the years at issue.
...
[T]here’s no question here that [taxpayer] has the right to pay
whatever it wants to Mr. Eberl. The only question here, of course, is
whether or not the company may deduct the amounts paid.
(I Trial Tr. at 6–7.) Perhaps persuaded by the Commissioner’s argument that a
company’s “owner and shareholder [would] ordinarily reap the benefits” of an
extraordinarily profitable year, not its employees, the Tax Court properly
concluded that Eberl’s salary was in fact a constructive dividend on which the
company should have paid taxes. ( Id. at 14.)
4. Financial Condition
Noting that as taxpayer’s revenues rose over the years, its profits remained
relatively “tiny” and its retained earnings and taxable income stagnated, the court
found taxpayer’s financial condition favored the Commissioner. Eberl’s Claim
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Serv. , slip mem. at 19–20. In its objection to the treatment of this factor,
taxpayer argues that the Tax Court erroneously relied on surveys comparing
taxpayer to companies not similarly situated.
Taxpayer advances a different scenario for our consideration. In its briefs,
taxpayer points to its expert’s testimony that the amounts paid to Eberl in 1992
and 1993 were reasonable, in which he compared Eberl to fifty of “the most
highly compensated” insurance company chief executives as summarized in a
Forbes magazine survey, while acknowledging that in the survey “we still do not
have anyone that’s in the claims adjusting field, as near as I can tell.” (II Trial
Tr. at 314, 315.) It was entirely proper for the Tax Court to reject the
comparison between the companies on the Forbes list, which are probably “the
very largest companies in the country” and some of whose CEOs are “way off the
board in terms of compensation,” and Eberl’s relatively small, nonpublic
company. ( Id. at 324, 315.)
The Commissioner’s expert, on the other hand, testified that “bottom line
net profit” is the principal measure of a company’s performance and supplied a
survey of pretax profits of comparable service companies. ( Id. at 390.) Given
the disparity, it was not improper for the Tax Court to reject the testimony of one
expert and rely on that of another. See Pepsi-Cola Bottling , 528 F.2d at 181
(holding the “credibility of witnesses, the weight of the evidence, and the
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reasonable inferences to be drawn therefrom are for the Tax Court to
determine”).
5. Evidence Used to Determine a Reasonable Amount of Compensation
Similarly, the Tax Court properly relied on expert testimony when it
determined the specific amounts that would have constituted reasonable
compensation in 1992 and 1993.
Based on Carey’s testimony that successful service companies comparable
to taxpayer had pretax profits of ten percent of sales during the years in question,
the court estimated that reasonable amounts of retained earnings would have been
$2 million and $1 million, respectively, for fiscal years 1992 and 1993.
According to those figures, reasonable compensation of Eberl would have been
$2,340,000 and $1,080,000 in those two years. Taxpayer asserts that this
amounted to the use of an “unprecedented hypothetical retained earnings test”
rather than an analysis of the circumstances as a whole as required by our
precedent. (Appellant’s Br. at 42.) To the contrary, we conclude the court
determined in light of all the evidence that Eberl’s salary was unreasonably large,
then relied on Carey’s evidence of reasonable retained earnings to fix a
reasonable amount.
While it is true that the court rejected some of Carey’s data as invalid,
taxpayer’s contention that his data on imputed pretax profits were thereby
- 16 -
discredited is without merit. Carey relied on two different surveys to determine
comparable salaries and typical pretax profits, and the Tax Court permissibly
determined the latter included comparable companies while the former did not.
See Pepsi-Cola Bottling , 528 F.2d at 181.
B. The Independent Investor Test
In an argument raised for the first time on appeal, taxpayer asks this Court
to adopt a new approach when determining reasonableness of compensation
under I.R.C. § 162(a)(1). Taxpayer asserts that while a multi-factor test of
reasonableness has been employed in this Circuit in the past, “this Court has not
expressly embraced such a test.” (Appellant’s Br. at 25.) It argues that this
Court’s opinion in Pepsi-Cola Bottling endorsed only the proposition that “the
determination of reasonable compensation is based on the totality of the
circumstances” but did not preclude future panels from revisiting the content of
the reasonableness test. ( Id. )
Specifically, taxpayer cites a recent “trend” in other Circuits toward the use
of an “independent investor” test. ( Id. at 26 (citing Exacto Spring Corp. v.
Comm’r , 196 F.3d 833, 838 (7th Cir. 1999) (rejecting a multi-factor approach to
determining reasonableness of a salary and adopting an “independent investor”
test); Dexsil Corp. v. Comm’r , 147 F.3d 96, 100–01 (2d Cir. 1998) (applying an
independent investor test and noting the test “is not a separate autonomous
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factor; rather, it provides a lens through which the entire analysis should be
viewed”); Rapco, Inc. v. Comm’r , 85 F.3d 950, 954–55 (2d Cir. 1996) (applying
a multi-factor test “from the perspective of an independent investor”); Elliotts ,
716 F.2d at 1245 (same).). We are urged to follow suit by setting aside the
traditional multi-factor test of reasonable compensation in favor of some form of
the independent investor test recently adopted by some of our sister Circuits.
The independent investor test approaches the issue of reasonableness by
asking “whether an inactive, independent investor would be willing to
compensate the employee as he was compensated.” Elliotts , 716 F.2d at 1245;
see also Exacto Spring , 196 F.3d at 839 (“When, notwithstanding the CEO’s
‘exorbitant’ salary . . . the investors in his company are obtaining a far higher
return than they had any reason to expect, his salary is presumptively
reasonable.”). In other words, a salary is entitled to a rebuttable presumption of
reasonableness when a hypothetical outside investor in the company would earn a
desirable rate of return. See Exacto Spring , 196 F.3d at 838 (“If the rate of
return is extremely high, it will be difficult to prove that the manager is being
overpaid, for [replacing the manager with a lower-paid manager] . . . would be
killing the goose that lays the golden egg.”). The independent investor test is an
attractive solution because it is “much simpler and more purposive” than the
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multi-factor approach, “return[ing] the inquiry to basics” by focusing on the
disinterested investor’s perspective. Id.
Somewhat disingenuously, taxpayer argues that in Pepsi-Cola Bottling , “at
no time did the Court state . . . that a multi-factor test was the proper method for
assessing reasonable compensation.” (Appellant’s Br. at 26 n.4.) To the
contrary, Pepsi-Cola Bottling establishes that this Court assesses reasonableness
of compensation using a multi-factor test. 528 F.2d at 179. Whatever the
relative wisdom of the two approaches, absent en banc rehearing we are bound to
the use of a multi-factor approach by our prior decision in Pepsi-Cola Bottling . 6
6
Further, of those Circuits that have embraced an independent investor
test, only the Seventh has gone so far as to jettison the multi-factor approach
entirely. Others have merely committed to viewing the totality of the
circumstances through the “lens” of, Dexsil Corp., 147 F.3d at 101, or “from the
perspective of,” Elliotts, 716 F.2d at 1245, a hypothetical outside investor. Those
Circuits have retained the totality of the circumstances approach that this Court
embraced in Pepsi-Cola Bottling.
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III
Taxpayer compensated Eberl “at a level that depleted it of virtually all of
its profits.” (Appellee’s Br. at 25.) The Tax Court properly found that a large
portion of Eberl’s compensation was in fact a disguised dividend and should be
taxed as such. Considering the record as a whole, we cannot say that the Tax
Court’s findings were clearly erroneous. The decision of the Tax Court is
AFFIRMED .
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Eberl's Claim Service, Inc. v. Commissioner
Court: Court of Appeals for the Tenth Circuit
Date filed: 2001-05-04
Citations: 249 F.3d 994
Copy CitationsCombined Opinion