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card tables and folding chairs as furniture, and they rented
telephones.
With the Officers at the helm, Components prospered and
became a successful entity. Although its gross receipts varied
greatly from year to year, based on the volatility of the
industry, Components reported the following results for the
taxable years ended November 30, 1979, through November 30, 1982:
Nov. 30, 1979 Nov. 30, 1980 Nov. 30, 1981 Nov. 30, 1982
Sales $251,588 $5,061,159 $1,876,555 $2,061,989
Gross profit
on sales $5,349 $1,499,411 $779,655 $832,036
Gross profit
on sales as
a percentage
of sales 2.1% 29.6% 41.5% 40.4%
Taxable income
(loss) ($110) ($4,592) $4,136 $32,967
Retained earnings
(deficit) ($110) ($14,691) ($11,562) $23,806
In the fall of 1982, the Officers agreed to transfer
Components to petitioner so that Mr. Woll could increase his
ownership percentage and John Laviano, Mr. Laviano's younger
brother, could become a shareholder. Petitioner was organized on
August 3, 1982. From petitioner's organization through July 31,
1985, Mr. Laviano owned 55 percent of its stock, Mr. Woll owned
40 percent, and John Laviano owned the remaining 5 percent.
Petitioner's board of directors consisted of Mr. Laviano,
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