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Ed Langley (Mr. Langley) was the manager of the wholesale
lumber business from the time Mr. Ruf became petitioner's CEO in
March 1986 and throughout the years at issue; however, he was
never an officer of petitioner during that period. During the
years at issue, Mr. Langley talked with Mr. Ruf on the telephone
daily and met with him approximately once a week. They dis-
cussed, inter alia, recruiting high caliber employees, raising
petitioner's credit standards for sales to outside customers, and
training petitioner's sales personnel to solicit customers.
Compensation
Petitioner paid Mr. Ruf the following amounts of compen-
sation during, and deducted those amounts in its Federal income
tax returns for, the years indicated:12
Year Ended Total Compensation Paid
Feb. 28, 1987 $80,000
Feb. 29, 1988 132,629
Feb. 28, 1989 1,454,746
Feb. 28, 1990 2,600,000
Feb. 28, 1991 750,000
In its financial statements, petitioner expensed the following
amounts of compensation that it had accrued with respect to Mr.
12 In the first supplemental stipulation of facts, the parties
rounded the amounts of compensation petitioner deducted in its
Federal income tax returns and expensed in its financial state-
ments for the relevant years. However, the record establishes
the exact amounts of such compensation, and we shall use herein
those exact amounts.
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