- 20 -
would expect to see a corresponding increase in sales for the
industry in general. However, the evidence shows that the
industry remained relatively stagnant over this period.
Respondent's own expert lists the sales figures of 11 companies
in the clothing industry during 1990, 1991, and 1992.4 The
combined sales for these companies dropped from $1,059,214,617 in
1990 to $997,443,690 in 1991 and rebounded to $1,078,385,309 in
1992. This translates to an overall increase of only 2 percent
during this period. Consequently, we find that the increase in
petitioner's sales, while partly due to fortuitous market
circumstances, was due primarily to the insight and hard work of
Messrs. Bennett and Sokol.
6. Comparison of Salaries Paid With Distributions to Messrs.
Bennett and Sokol and Retained Earnings
The failure to pay more than minimal dividends may suggest
that reported compensation actually is (in whole or in part) a
dividend. Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d at
1323-1324; Charles Schneider & Co. v. Commissioner, 500 F.2d 148,
151-152 (8th Cir. 1974), affg. T.C. Memo. 1973-130.
Corporations, however, are not required to pay dividends.
Indeed, shareholders may be equally content with the appreciation
4Respondent's expert, Francis X. Burns of the IPC Group,
LLC, prepared a report on the compensation of Messrs. Bennett and
Sokol. This report is discussed infra.
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