The Escrow Connection, Inc., A.K.A. The Escrow Connection - Page 6

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          Petitioner's witness, Larri E. Jones (Jones), an executive vice             
          president of a title insurance company with an escrow practice,             
          would be satisfied with a 10-percent profit margin.                         
               Petitioner did not pay dividends from 1984 through 1988, and           
          in 1989 and 1990, it paid $3,000 and $3,250 in dividends,                   
          respectively.  Petitioner did not pay dividends before 1989 to              
          build up retained earnings.  Petitioner allowed retained earnings           
          to accumulate to guard against possible slowdowns in the escrow             
          industry and to satisfy government liquidity requirements.                  
          Accumulating retained earnings is a normal practice in the escrow           
          industry, especially for startup firms.  Shareholder equity                 
          increased from $20,000 (Kleindienst's initial capital investment)           
          to $341,708 by 1989.  Shareholder equity decreased in 1990 to               
          $338,458, and petitioner's net income after taxes was $0.                   
          Kleindienst received compensation in the following amounts:                 
              Year         Total                                   Percent of        
               Ended     Compensa-    Base        Gross       Gross Receipts          
          July 31        tion      Salary     Bonus     Receipts         (%)          
               1984      0         0       0           0          N/A                 
               1985     $109,250  $39,250  $70,000   $318,963     34.25               
               1986      189,346   53,250  136,096    496,169     38.16               
               1987      364,755   94,250  270,505    830,557     43.92               
               1988      390,000  155,000  235,000  1,101,072     35.42               
               1989      584,710  240,000  344,710  1,466,318     39.88               
               1990      564,800  300,000  264,800  1,462,243     38.63               
          In 1989 and 1990, Kleindienst's compensation as a percentage of             
          taxable income before deducting her compensation was 85 percent             
          and 98 percent, respectively.                                               
               Petitioner did not have a written employment agreement with            
          Kleindienst or a stated formula for determining her compensation.           



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