The opinion
NICHOLS, Judge
(concurring in part, dissenting in part):
I agree that the Commissioner of Internal Revenue could have disallowed a part of plaintiff’s executive compensation. I differ both with him and with the court as to how the disallowance should be computed.
There is nothing illegal or immoral per se in a closely held corporation compensating its officers in part by a percentage of net profits, even when they are also stockholders. Should a reasonable plan be adopted prospectively and on a permanent basis, the tax laws would allow it considerable effect even during years when unusual prosperity might occasion executive compensation entirely out of line with that normal in similar companies paying a flat salary only. Should the additional compensation or bonus for a fiscal year be voted only after the year was closed and the results known, the permissible leeway would be a great deal less. When, as here, a plan for each year was adopted after that year has begun but before its close, there is an intermediate situation. But in none of these cases do the Tax Commissioner, our commissioner, or we judges, have any right to substitute our judgment for that of management as to whether officers should receive precent-age or incentive compensation or be on a flat salary.
I think, since plaintiff was not committed to the plan for any year until voting it after the start of that year, its directors could not assume the plan was permanent, as plaintiff’s brief asserts, but should have reconsidered it each year in light of the situation then existing. Had they done this, they would have seen that the assignment of 20'.% of the net profits before income taxes to Paul C. Jones, 12% to Ora E. Jones, and 8i% to Gladys J. Chappell, 40% in all, however reasonable at the outset, had become less and less so as time went on. As a company grows by plowing back its earnings, instead of paying them out in dividends, the relative contributions of capital, and management undergo a change. In general, as net worth, capital, sales, assets, and plant, all grow, the contribution of management also grows, but at a lesser rate, and stated as a percentage of other indicators it declines. Therefore, if 20% was reasonable for Mr. Jones in 1955, some lesser percentage or percentages would be reasonable in 1959-60-61. How much lesser, I need not, as a minority of one, pause to determine. The *1300 proper sequence of steps would have been to find what percentage or percentages would have been reasonable, prospectively applied in each year, and to compute the disallowances from them.
As a protection to the Federal Revenue, I do not know whether my technique or the court’s is more effective, but I am sure that mine allows the directors of small companies a smidgen more of freedom to make their own decisions, free of second guessing by the superior wisdom of Washington.
If, however, it is proper to do as the court does, determining an allowable fixed salary for each year, regardless of operating results, I think the court should not have altered the figures recommended by our commissioner. These were: $40,000 for Paul C. Jones, $22,400 for Ora E. Jones, and $13,200 for Gladys J. Chappell. They are fact findings. Newport News Shipbuilding and Dry Dock Co. v. United States, 374 F.2d 516 , 179 Ct.Cl. 97 (1967). Thus by Rule 66 they are presumed correct. I do not see how or where the presumption has been overcome.
COLLINS, Judge, joins in the foregoing opinion concurring in part and dissenting in part.