Pulsar Components International, Inc. - Page 1

                                 T.C. Memo. 1996-129                                  

                               UNITED STATES TAX COURT                                

                PULSAR COMPONENTS INTERNATIONAL, INC., Petitioner v.                  
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 15172-92.             Filed March 14, 1996.                 

                    Held:  Compensation paid by P to two of its                       
               officers/shareholders is reasonable.  Both officers had                
               the appropriate education and employment background for                
               their positions with P, worked long hours for the                      
               company and its predecessor, and helped increase its                   
               gross sales in a volatile market.  The success of the                  
               business required great expertise in trading computer                  
               chips and microprocessors.  These qualities were                       
               especially exemplified during the taxable year at issue                
               when P proved profitable even though it faced adverse                  
               economic conditions.  Moreover, P's retained earnings                  
               grew, and P paid regular dividends.  Although P paid                   
               the officers more compensation than provided for in                    
               their employment agreements, all of their compensation                 
               was reasonable in light of the significant appreciation                
               in the value of P's stock and other facts and                          

               Charles R. Goulding and Michael S. Press, for petitioner.              

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