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and indicate the extent (if any) of the employees effect on the
company. Mayson Manufacturing Co. v. Commissioner, supra at
119-120. Adverse economic conditions, for example, tend to show
that an employee's skill was important to a company that grew
during the bad years.
Because petitioner's industry seeks to take advantage of
supply imbalances present in the computer chip/semiconductor
market, it is characterized by periods of rapid growth and
profitability followed by periods of sharp decline. Petitioner
faced declining sales during the subject year as market
imbalances in supply began to correct themselves, and petitioner
was forced to compete with an increasing number of competitors.
Although petitioner's gross receipts declined significantly,
petitioner experienced an increase in its taxable income,
retained earnings, and shareholder’s equity. The adverse
economic conditions tend to show that the Officers' skill and
diligence were important to petitioner's success. This factor
favors petitioner.
g. Comparison of Salaries With Distributions to
Officers and Retained Earnings
The failure to pay more than minimal dividends may suggest
that reported compensation actually is (in whole or in part) a
dividend. Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d
1315, 1322-1323 (5th Cir. 1987), affg. T.C. Memo. 1985-267;
Charles Schneider & Co. v. Commissioner, 500 F.2d at 151.
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