-37-
paid minimal dividends before the first year in issue. The
taxpayer's president and sole shareholder reduced his salary so
that the total amount he received from the taxpayer (dividends
plus salary) was virtually unchanged for 4 years. Id. at 182.
Unlike Doug-Long, Inc., petitioner paid a reasonable amount of
dividends from 1983 to 1989, the salaries paid to petitioner's
officers steadily increased before the years in issue, and
petitioner did not reduce dividends to keep payments to its
shareholders level.
Although petitioner could have paid larger dividends, it
reasonably chose to use those funds to expand its business. Its
business did grow as shown by the substantial increase in its
annual sales from 1982 to 1989. We think petitioner prudently
decided to pay reasonable dividends and salaries to its officer-
shareholders, and retained the rest of its earnings to expand the
business. See John P. Scripps Newspapers v. Commissioner, supra
at 473 (taxpayer acted prudently in distributing a substantial
part of its earnings and retaining the remainder to use to expand
its operations).
3. Conclusion
We conclude that petitioner was not formed or availed of to
avoid income tax on its shareholders.
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