Wy'East Color, Inc. An Oregon Corporation - Page 10

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               2. Kadac, Inc.                                                         
               Mr. Cummings formed Kadac to replace Dacor.  He incorporated           
          Kadac in Nevada on April 28, 1989.  Mr. Cummings, Mrs. Cummings,            
          and their sons, Deen, Grant, and Bruce, each owned 200 shares of            
          Kadac stock.  Kadac and Lasercolor share facilities in Bellevue,            
          Washington.  Kadac did not pay dividends during the years in                
          issue.  Kadac provided management services to petitioner and                
          Lasercolor.  Neither Dacor nor Kadac kept time sheets or other              
          records of the services they or any member of the Cummings family           
          performed for petitioner.  Kadac's taxable year ended on December           
          31 during the years in issue.                                               
               Kadac’s only employee from 1989 to 1991 who was not related            
          to the Cummings was Wendy Jo Goddard.                                       
               3. Management Fees                                                     
               Dacor received management fees of $276,266 in its fiscal               
          year 1989 (ending March 31, 1989) and Kadac received $317,906,              
          $806,658, and $881,820 in calendar years 1989, 1990, and 1991,              
          respectively (a total of $2,282,650 from April 1, 1988 to                   
          December 31, 1991).1  Dacor paid officer compensation, salary,              


               1 Petitioner deducted management fees totaling $1,721,890              
          for fiscal years (1989, 1990, and 1991); i.e., from Apr. 1, 1988,           
          to Mar. 31, 1991.  The record does not indicate whether                     
          petitioner paid the $881,820 ratably throughout 1991.  If                   
          petitioner paid the $881,820 ratably throughout 1991, then Kadac            
          would have received one-fourth of that amount ($220,455) by                 
          Mar. 31, 1991, and Dacor and Kadac would have received $1,621,285           
          from Apr. 1, 1988 to Mar. 31, 1991.                                         




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