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(3) Character and Condition of Company
The next factor considers the company's character and
condition. Relevant considerations are the company’s size as
measured by its sales, net income, or capital value; the
complexities of the business; and general economic conditions.
Elliotts, Inc. v. Commissioner, 716 F.2d at 1246; see E. Wagner &
Son, Inc. v. Commissioner, 93 F.2d 816, 819 (9th Cir. 1937).
Petitioner, a relatively large company, was engaged in the
highly specialized pipeline construction business. The pipeline
construction industry is noted for periods of growth and subsequent
decline. Mr. Leonard's double-jointing process, which was a unique
method at the time, helped promote petitioner's business.
Petitioner's income stream was dependent upon Mr. Leonard's ability
to successfully bid and perform lucrative contracts.
The ratio of Mr. Leonard's 1987 bonus to gross sales for that
year is 29 percent ($1,680,000 divided by $5,740,283). The ratio
of Mr. Leonard's 1987 bonus to petitioner's taxable income before
the compensation deduction is 34 percent ($1,680,000 divided by
$4,922,631). These percentages are reasonable in light of Mr.
Leonard's work for petitioner over the years as well as the prior
years' undercompensation.
This factor favors petitioner.
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