Lumber City Corporation, f.k.a. Neiman-Reed Lumber and Supply Company, Inc. - Page 30

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          tioner intended to compensate Mr. Ruf for services he performed             
          for it during its fiscal years ended February 29, 1988, February            
          28, 1989, and February 28, 1990, when it paid him $2,600,000 in             
          compensation during its fiscal year ended February 28, 1990.                
               We shall now analyze and apply herein the relevant factors             
          identified by the Court of Appeals to determine reasonable                  
          compensation within the meaning of section 162(a)(1).                       
          Role in Company                                                             
               The first category of factors identified by the Court of               
          Appeals is the role in the company of the employee whose compen-            
          sation is at issue.  Relevant considerations include the employ-            
          ee's qualifications, position, hours worked, duties performed,              
          and general importance to the company's success.  Elliotts, Inc.            
          v. Commissioner, 716 F.2d at 1245-1246.                                     
               There is little doubt that Mr. Ruf played a significant role           
          in returning petitioner to profitability.  At the time Mr. Ruf              
          became petitioner's CEO in March 1986, petitioner was on the                
          verge of bankruptcy and was not paying its suppliers and other              
          creditors because it did not have enough cash.  As of February              
          28, 1986, petitioner's net worth was negative $1,514,000.                   
          According to its audited financial statement for its fiscal year            
          ended February 28, 1986, petitioner's net income after taxes (but           
          before utilization of net operating loss carryforwards/carry-               







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