Sunbelt Clothing Company, Inc., f.k.a. Unprinted T-Shirt Warehouse, Inc. - Page 21

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          of their stock caused, for example, by the retention of earnings.           
          Owensby & Kritikos, Inc. v. Commissioner, supra; Home Interiors &           
          Gifts, Inc. v. Commissioner, 73 T.C. at 1162.                               
               Petitioner paid $48,000 in dividends in fiscal years 1990              
          and 1991 and $24,000 in dividends in fiscal year 1992.  Whether             
          to pay a dividend, and the amount thereof, were business                    
          decisions made by petitioner's board of directors.  As explained            
          in the August 31, 1986, minutes of petitioner's board of                    
          directors meeting, the decision whether to pay dividends was                
          based on petitioner's need to:  (1) Make up past                            
          undercompensation of its officers, (2) assure current growth, (3)           
          assure future growth, (4) allow for expansion into a new 150,000-           
          square foot distribution center, and (5) prepare for anticipated            
          overseas expansion.  We decline to second-guess the board of                
          director's business judgment under the facts of this case; we               
          view its decisions concerning the payment of dividends and the              
          amounts thereof as reasonable business decisions.                           
               In reviewing the reasonableness of an employee's                       
          compensation, courts often look at whether a hypothetical                   
          shareholder would have received a fair return on his investment             
          after the payment of the compensation in question.  Owensby &               
          Kritikos, Inc. v. Commissioner, supra at 1326-1327.                         
               A hypothetical investor in petitioner would have realized              
          the following returns on equity for the years in issue:  81.77              

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