Burden of Proof of Reasonableness

August 26, 1959 BIR RULING NO. 420-59 Mr. Romeo Y. Co R-224 Calvo Bldg. Escolta St., Manila S i r : In reply to your letter dated January 7, 1959, I have the honor to inform you as follows: Our Supreme Court in the case of Alhambra Cigar & Cigarette manufacturing Company, G.R. No. L-12026, promulgated May 29, 1959, held that director's fees may be allowed provided, "there is a showing of the nature or extent of the services rendered by the board of directors, . . . the value of their services, or the reasonableness of the purported director's fees." It further said that, ". . ., deductions are limited to amounts which are reasonably commensurate with the personal services actually rendered. And in view of the circumstances that these individuals practically own all the shares of stock of the corporation, we would require more convincing proof of the reasonableness of their purported compensation and that proof must also show that such . . . director's fees are not disguised distributions of profits." Of course there is no fixed yardstick by which the question of the reasonableness of the compensation in any particular case can be measured. The question is one of fact to be determined in each case. Also the burden of proof of reasonableness is on the taxpayer and a claim for deduction will be disallowed unless its reasonableness is proved. Your query is therefore answered in the light of the doctrine enunciated above. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue