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Petitioner's strength revealed itself during the economic
slowdown. Ginger had aligned petitioner with the large
developers, the most likely candidates to build during the
downturn. By this time, however, bid prices were critical in
obtaining work. Ginger studied the jobsites of his competitors
and talked to their customers and suppliers in an attempt to
determine whether a competitor could bid a lower price than
petitioner. These were additional duties that Ginger took on as
a result of the economic slowdown. In addition, Ginger reviewed
an industrywide credit report that indicated whether petitioner's
competitors were experiencing credit problems.
Many other construction-related companies lost business
during the fall of 1990 and some went out of business entirely.
John Connors (Connors), vice president of a construction
materials supply company, held an emergency meeting with the
executives of his company in September 1990 to address the
economic downturn. Connors' stores suffered a 40-percent to 60-
percent drop in sales. Connors' company reduced its staff from
145 to 80 and reduced salaries across the board by 10 percent.
OPINION
Section 162(a)(1) allows a corporation to deduct "a
reasonable allowance for salaries or other compensation for
personal services actually rendered" as a business expense. To
come within the ambit of section 162(a)(1), the compensation must
be both reasonable in amount and in fact paid purely for
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