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We are guided by prior cases in reviewing the evidence here.
If payments in dispute are contingent compensation pursuant to a
contract, the circumstances to be taken into consideration are
those existing at the date when the contract for services was
made, not those existing at the date when the contract was
questioned. American Foundry v. Commissioner, 59 T.C. 231, 244
(1972), affd. in part and revd. in part 536 F.2d 289 (9th Cir.
1976); sec. 1.162-7(b)(3), Income Tax Regs. The past and present
financial condition of the company is relevant. Home Interiors &
Gifts, Inc. v. Commissioner, 73 T.C. 1142, 1156 (1980).
Evaluating the compensation as a percentage of net income, rather
than of gross receipts, is in most cases more probative because
it more accurately gauges whether a corporation is disguising the
distribution of dividends as compensation. Owensby & Kritikos,
Inc. v. Commissioner, supra at 1325-1326.
The Eurotor/MTNV January 24, 1983, contract for management
services established a fee of 50 cents per patron. The
attendance figures and profitability of the company were unknown
at the time of the contract because the Kissimmee castle did not
open until December 1983. The MSI contract, which was in effect
during the years in issue, was essentially a renegotiation of the
January 24, 1983, contract. The MSI contract changed the fee
from 50 cents per client to a fee of 2 percent of gross
production. Based on MSI’s 1988 and 1989 tax years, during which
gross production was $11,338,915 and $12,714,857, respectively,
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