210 F.3d 384 (9th Cir. 2000), 98-71430, Leonard Pipeline Contractors v. Commissioner of Internal Revenue

Docket Nº:98-71430.
Citation:210 F.3d 384
Party Name:LEONARD PIPELINE CONTRACTORS, LTD., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Case Date:January 26, 2000
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 384

210 F.3d 384 (9th Cir. 2000)

LEONARD PIPELINE CONTRACTORS, LTD., Petitioner-Appellant,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 98-71430.

United States Court of Appeals, Ninth Circuit

January 26, 2000

No. 28985-91. Argued and Submitted Oct. 7, 1999. Submission deferred Oct. 28, 1999

Editorial Note:

This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA9 Rule 36-3 regarding use of unpublished opinions)

Re-Submitted Jan. 15, 2000.

85 A.F.T.R.2d 2000-844, 2000-1 USTC P 50,208

Appeal from a Decision of the United States Tax Court, Julian I. Jacobs, Tax Court Judge, Presiding.

Before SNEED, PREGERSON, Circuit Judges, and CARTER, 2 District Judge.

MEMORANDUM 1

Because the parties are familiar with the factual and procedural history of the case, we will not recount it here.

Leonard Pipeline Contractors, Ltd. ("Taxpayer") appeals the judgment of the United States Tax Court, the Honorable Julian I. Jacobs, Presiding, limiting the deduction of reasonable compensation to its president, Richard L. Leonard ("Leonard"), for the 1987 tax year to $700,000. We affirm.

As a threshold matter, we find that the actions of the Tax Court in consulting with the experts and urging settlement on the parties did not 'unfairly prejudice' Taxpayer and reject Taxpayer's suggestion for a de novo review.

In the context of a § 162(a)(1) "reasonableness" inquiry, the reasonableness of compensation paid by a corporation is a question of fact reviewed for clear error. See Elliotts, Inc. v. Comm'r, 716 F.2d 1241, 1245 (9th Cir.1983). "Review under the 'clearly erroneous' standard is significantly deferential, requiring a 'definite and firm conviction that a mistake has been committed." ' Concrete Pipe & Prods. v. Construction Laborers Pension Trust, 508 U.S. 602, 623 (1993) (citation omitted).

In addressing the issue of reasonable compensation, the court must consider a number of factors, "with no single factor being dispositive." Elliotts, 716 F.2d at 1244. For analytical purposes, the factors may be divided into five broad categories: (1) the employee's role in the company; (2) a comparison of the compensation paid to the employee with the compensation paid to similarly situated employees in similar companies; (3) the character and condition of...

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