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percentage of gross receipts that Rogers received as compensation
in 1989--18.6009 percent--and applying that percentage to
petitioner's 1990 gross receipts. Petitioner contends that,
although Rogers' compensation in 1990 was 44.9 percent of that
year's gross receipts, it is reasonable because when the 1990
percentage is averaged with the prior years' percentages, the
average percentage is 18.84 percent, which is almost the same
percentage as the compensation respondent allowed in 1989.14
Thus, petitioner argues that the compensation paid Rogers in
1990 was, in part, paid to compensate him for undercompensation
in earlier years. Respondent counters that in making this
argument petitioner, in effect, is seeking to deduct in 1990
compensation for services performed by Rogers in prior years.
14 Rogers' compensation in 1986, 1987, 1988, 1989, and 1990
measured as a percentage of petitioner's gross receipts in each
of those years is 7.8, 6.0, 16.9, 18.6, and 44.9 percent,
respectively. The average of the percentages is 18.84 percent.
We find, however, that petitioner's argument on this point
is flawed. From 1986 through 1990, petitioner paid Rogers
$5,942,622, and petitioner's total gross receipts for the same
period were $19,462,685. Thus, the total compensation paid to
Rogers as a percentage of petitioner's total gross revenue is
30.53 percent.
If it was actually petitioner's intent to compensate Rogers
in 1990 for his service in the prior years by paying him 18.6
percent of the gross receipts it earned in those years,
petitioner would have paid Rogers $2,116,618. This amount is the
total of 18.6 percent of each prior year's gross receipts less
the amounts petitioner actually paid to him for each of those
years, plus 18.6 percent of petitioner's 1990 gross receipts.
((18.6% x $848,403) - $66,943) + ((18.6% x $1,196,849) - $75,914)
+ ((18.6% x $2,542,912) - $431,702) + ((18.6% x $4,993,761) -
$928,883) + (18.6% x $9,880,760).
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