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VII. Systems
A. Overview
The Johnsons are husband and wife, and they resided in Waco,
Texas, when they petitioned the Court. Systems' principal place
of business was in Waco, Texas, when it petitioned the Court.
Since 1990, Systems' only employees have been the Johnsons and
Robert J. Carr. Mr. Carr, a certified public accountant
(C.P.A.), is Systems' controller.
Mr. Johnson initially owned 49 percent of Systems' common
stock, and Mrs. Johnson owned the rest. On December 1, 1990,
Systems canceled the shares of stock initially issued to the
Johnsons and reissued 21 shares to Mr. Carr, 39 shares to
Mr. Johnson, and 40 shares to Mrs. Johnson. On February 2, 1991,
Mr. Johnson held 79 shares of Systems' stock through a
partnership known as Chief Smokey, Ltd., and Mr. Carr owned the
remaining shares.
Systems reported its operations for Federal income tax
purposes on a fiscal year ending on September 30, and it used the
cash method on its relevant tax returns. These returns included
the following information:
Taxable year ended 09/30/90 09/30/91 09/30/9209/30/93
Total income $51,643 $725,000 $606,132 $909,028
Compensation of officers - 0 -303,200 102,200 143,000
Salaries & wages20,481 1,000 1,000 7,855
Pension, profit-sharing, plans - 0 -- 0 - - 0 - - 0 -
Employee benefit programs- 0 - 301,150 300,000 700,000
Taxable income (loss) (24,159) 35,132 145,3847,518
Of the reported compensation, Mr. Johnson received zero,
$150,000, $142,500, $120,000, and $130,000 during his respective
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