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The 1987 deferred compensation arrangement was terminated as of
January 31, 1989. In its audited financial statement for its
fiscal year ended February 29, 1988, petitioner expensed $871,000
in deferred compensation with respect to the 1987 deferred com-
pensation arrangement. That expense was the only expense
reflected in its financial statements for the years at issue with
respect to that arrangement. During petitioner's fiscal year
ended February 28, 1989, petitioner paid $933,333 to Mr. Ruf
pursuant to the 1987 deferred compensation arrangement.15
Petitioner did not pay Mr. Ruf a base salary in either of
its fiscal years ended February 28, 1990, or February 28, 1991.
The $2,600,000 of compensation petitioner deducted in its Federal
income tax return for its taxable year ended February 28, 1990,
was not paid to Mr. Ruf pursuant to a plan.
Petitioner's Financial Results
According to its financial statements, petitioner had the
following sales, net income after taxes (but before utilization
of net operating loss carryforwards/carrybacks), and sharehold-
er's equity for the years indicated:
15 The record does not explain how petitioner calculated the
$871,000 it expensed in its financial statement for its fiscal
year ended Feb. 29, 1988, with respect to the 1987 deferred
compensation arrangement or the $933,333 it paid to Mr. Ruf
during its fiscal year ended Feb. 28, 1989, with respect to that
arrangement.
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