Moreover, and perhaps more significant, the compensation, apart from the bargain, was reasonable under all the circumstances. Petitioner deducted the compensation paid to Van Luit on its and Federal income tax returns. Commencing on March 10, , Daniel J. In addition, the complexity of the background prevented imitations by others in the industry, thus assuring the unique quality and market position of the Van Luit product. These promotional and marketing innovations advanced petitioner’s position in the wall-covering industry and were key factors in petitioner’s high sales volume and high profit margin. The compensation arrangement was the product of a free bargain between petitioner and Van Luit designed to secure “on fair and advantageous terms the services of the individual.
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ALBERT VAN LUIT CO., INC. v. COMMISSIONER
The fact that the payments akbert no relationship to Van Xompany stockholding, and that the compensation was bargained for when petitioner was not producing large profits further buttress the reasonableness of the compensation formula.
These promotional and marketing innovations advanced petitioner’s position in the wall-covering industry and were key factors in petitioner’s high sales volume and high profit margin.
The arm’s-length nature of the contract, in conjunction with the remarkable contributions and service of Albedt Luit provide, according to petitioner, more than ample support for the reasonableness of the compensation.
Petitioner manufactured and distributed wallpaper of a superior quality. Citations are also linked in the body of the Featured Case. Click on the case name to see the full text of the citing case. Compare Consolidated Apparel Co.
Listed below are the cases that are cited in this Featured Case. We think petitioner has shown that Van Luit’s compensation was reasonable. The compensation paid by petitioner to Van Luit in and was reasonable within the meaning of section a 1. Commencing on March 10,Daniel J. Attorney s appearing for the Case Don M.
Van Luit died on May 28,at the age of He possessed a genius for determining commercially salable design and color combinations. InVan Luit moved to California and opened a sole proprietorship to manufacture wallpaper. Section a 1 permits a corporation a deduction in computing taxable income for reasonable compensation paid to its employees.
Filed March 13, The issue of whether the amounts paid to Van Luit constituted reasonable compensation is factual, and the burden of proving reasonableness is on petitioner, Botany Mills v.
Petitioner keeps its books and records, and reports its income using the accrual method of accounting and a calendar year basis. Due to Van Luit’s experience and extensive travel, he knew many wallpaper dealers and was thus able to establish a distribution system companh still exists today. Comments Characters Remaining. Van Luit worked with designers to achieve the desired effects, and had complete control over the final decisions on color.
Albert Van Luit
Basing our conclusion upon all the evidence of record, we hold that the compensation paid to Van Luit for and was reasonable. We also note that respondent introduced evidence of compensation paid to chief executives of certain corporations in the industry.
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The arrangement was reviewed periodically by the board of directors, but was never changed. In the mid’s, Van Luit utilized advanced photographic techniques to develop miniatures of the “scenic” style wallpaper manufactured by petitioner.
VL213224, Eternity by Albert Van Luit & Co
Thus, we are not convinced by his testimony ulit Van Luit’s compensation was unreasonable. Early in petitioner’s history, Van Luit established a revolutionary distribution system. Petitioner deducted the compensation paid to Van Luit on its and Federal income tax returns.
Generally speaking, if contingent compensation is paid pursuant to a free bargain between the employer and the individual made before the services are rendered, not influenced by any consideration on the part of the employer other than that of securing on fair and advantageous terms the services of the individual, it should be allowed as a deduction even though in the actual working out of the contract it may prove to be greater than the amount which would ordinarily be paid.
After high school, Van Luit attended art school for a more formal education in interior design.
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Van Luit was responsible for petitioner’s successful operation at every level. In light of his past and continuing services, and his exceptional contributions to petitioner, Van Luit was entitled to substantial compensation. Cited Cases No Cases Found. He knew many people in the wall-covering industry and never lost touch with the interior designers who created much of petitioner’s business.
Petitioner maintains that the regulations, section 1.