E.J. Harrison & Sons, Inc. v. Commissioner of Internal Revenue

MEMORANDUM *

The Tax Court properly evaluated Mrs. Harrison’s role in the company in determining her reasonable compensation under Internal Revenue Code § 162(a)(1) and in light of our mandate on remand. See E.J. Harrison & Sons, Inc. v. Comm’r, 138 Fed.Appx. 994 (9th Cir.2005). We previously reversed the Tax Court because, although the Tax Court correctly applied the factors set forth in Elliotts, Inc. v. Commissioner, 716 F.2d 1241 (9th Cir.1983), in concluding that some portion of Mrs. Harrison’s compensation was unreasonable, the Tax Court clearly erred by disregarding record evidence that her duties as board president were at least as extensive as the duties performed by her sons, the other board members. We remanded so that the Tax Court could identify a reasonable amount, which was not to “drop[] below that of her sons during the audit years.” E.J. Harrison & Sons, Inc., 138 Fed.Appx. at 996 .

The Tax Court complied. It reasoned that “we would not be amiss to find that she was reasonably compensated at some level between her actual compensation and the compensation paid her sons.” The compensation level the Tax Court arrived at for the audit years comported with the scope…