Robert A. Young and Gertrude R. Young, and R. & G. Young Vineyards, Inc. v. Commissioner of Internal Revenue

This is an appeal from a Tax Court decision finding deficiencies in the corporate income taxes of R. and G. Young Vineyards for the fiscal years 1973 and 1974. At issue is whether the salary and bonus paid by the corporation to its president, Robert Young, constituted reasonable compensation deductible as a business expense under Section 162(a)(1) of the Internal Revenue Code. 26 U.S.C. § 162 (a)(1).

Robert Young has farmed in Sonoma County since the mid-1930’s. Prior to 1963, he used his acreage as pasture and to raise prunes. He then began conversion of his pasture into vineyards, concentrating on the growing of varietal grapes used for premi um wines. Young proved to be an efficient, innovative, and highly successful viticulturist. Wine from his grapes, marketed under the Chateau St. Jean label, have received several medals in wine competitions.

Prior to 1972, Young conducted his operation as a sole proprietorship. Unlike most other farms in the area, he did not employ a manager or foreman. Instead, he and his wife, Gertrude, assumed all of the major responsibilities in the operation. He set planting schedules, selected the types of grape and root stock to be used, and…