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In determining whether an arm's-length negotiation occurred
between petitioner and Messrs. Bennett and Sokol, we find the
comparison between Messrs. Bennett's and Sokol's shareholding
percentages and their respective compensations most persuasive.
Messrs. Bennett and Sokol, although equal shareholders, received
the following percentages of total officer salary:
FYE Mr. Bennett Mr. Sokol
7/30/89 83.55 percent 16.45 percent
7/29/90 75.19 percent 24.81 percent
7/28/91 75.19 percent 24.81 percent
8/02/92 100.00 percent N/A
Messrs. Bennett and Sokol each owned 50 percent of petitioner.
Each was a board member with equal control. Messrs. Bennett and
Sokol were not in any way related to one another and had no
incentive or outside pressures to pay the other any amount other
than that which was fair and reasonable to petitioner.
Nevertheless, the amount of compensation paid to Messrs. Bennett
and Sokol was not in proportion to their shareholdings. Respondent
has stipulated that petitioner's redemption of Mr. Sokol's shares
was not tied to his compensation. Based on all the facts, it is
reasonable to conclude that Messrs. Bennett's and Sokol's
compensation was bargained for at arm's length and was not a
disguised dividend. See Owensby & Kritikos, Inc. v. Commissioner,
supra at 1326. Indeed, Mr. Sokol sought the advice of his personal
certified public accountant, Mr. Gene Barber, regarding the issue
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