- 29 -
28, 1987, is entirely reasonable given the magnitude of the turn-
around he thereby achieved for petitioner during that year.20 It
also is entirely reasonable that petitioner desired to sustain
its turnaround and attempted to maximize its chances of doing so
by requiring Mr. Ruf to continue to provide services to it during
the three fiscal years following its fiscal year ended February
28, 1987.21
We further find, based on our examination of the entire
record before us (including the testimony of Mr. Lyons and Mr.
Ruf, both of whom we found credible on this issue), that peti-
20 On the present record, we reject respondent's contention that
Mr. Ruf was not undercompensated during petitioner's fiscal year
ended Feb. 28, 1987, because he received an option to purchase
petitioner's stock. Respondent did not determine that the
receipt of that option resulted in taxable compensation to Mr.
Ruf. Nor did she present any evidence to show that the purchase
price paid for all of petitioner's stock was less than the fair
market value of that stock. Although the stock option was
offered to Mr. Ruf in an effort to cause him to decide to join
petitioner, it does not necessarily follow that the amount of
reasonable compensation that petitioner may deduct for Mr. Ruf's
services during its taxable year ended Feb. 28, 1987, is affected
by Mr. Ruf's receipt of that option.
21 On the instant record, we reject respondent's contention
that, because the $1,500,000 of compensation that petitioner was
to accrue under the 1987 deferred compensation arrangement in
equal installments of $500,000 for each of its fiscal years ended
Feb. 29, 1988, Feb. 28, 1989, and Feb. 28, 1990, was payable
"provided only that Jesse Ruf shall complete twelve (12) calendar
months of employment during each" of such fiscal years, petition-
er awarded the $933,333 of compensation it paid under that
arrangement exclusively for services Mr. Ruf provided during its
fiscal years ended Feb. 29, 1988, and Feb. 28, 1989.
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