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operating loss carryforwards/carrybacks) for each of its five
fiscal years that commenced with its fiscal year ended February
28, 1987, at the beginning of which Mr. Ruf became its CEO,
respondent notes that those net profits declined for each such
successive year. She argues that such a pattern of declining net
profits is a factor that should significantly reduce the amount
of Mr. Ruf's compensation that is considered reasonable for each
such year. Respondent's argument fails to take into account that
the decline in petitioner's net profits as reflected in its
financial statements for the five-year period that began with its
fiscal year ended February 28, 1987, and ended with its fiscal
year ended February 28, 1991, was attributable in part to peti-
tioner's expensing in its financial statements for certain of
those years (i.e., its fiscal years ended February 29, 1988, and
February 28, 1990) substantial amounts of compensation that were
partially attributable to services Mr. Ruf provided during fiscal
years other than those for which such amounts were expensed.
In its financial statement for its fiscal year ended
February 29, 1988, petitioner expensed $871,000 pursuant to the
1987 deferred compensation arrangement. That was the only
expense petitioner reflected in its financial statements for the
years at issue with respect to that arrangement. Although that
amount was expensed in its entirety in petitioner's financial
statement for its fiscal year ended February 29, 1988, we have
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