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Exacto Spring Corporation v. Commissioner

Law Dictionary

Law Dictionary

Featuring Black's Law Dictionary 2nd Ed.
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Income Tax Keyed to Freeland

Citation. Exacto Spring Corp. v. Comm’r, 196 F.3d 833, 1999 U.S. App. LEXIS 29988, 99-2 U.S. Tax Cas. (CCH) P50,964, 84 A.F.T.R.2d (RIA) 6977, 23 Employee Benefits Cas. (BNA) 2288 (7th Cir. Nov. 16, 1999)

Brief Fact Summary. William Heitz was the cofounder, chief executive officer, and principal owner of the Exacto Spring Corporation. The corporation paid him $1.3 million and $1.0 million for tax years 1993 and 1994 as compensation. The corporation sought to deduct this from its income.

Synopsis of Rule of Law. A business may deduct from its income ordinary and necessary business expenses including a reasonable allowance for salaries or other compensation for personal services.

Facts. William Heitz was cofounder, chief executive officer, and principal owner of Exacto Spring Corporation. He was paid $1.3 million and $1.0 million in salary in 1993 and 1994. The IRS found this excessive and thought he should not have been paid more than $381,000 in 1993 or $400,000 in 1994. The difference was added to the corporation’s income and a deficiency assessed. The Tax Court found that the maximum reasonable compensation should have been $900,000 and $700,000.

Issue. Was the salary paid to Heitz excessive and should the excess be included on the corporation’s income?

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