Labelgraphics, Inc. - Page 22

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          Pacific Grains, Inc. v. Commissioner, 399 F.2d at 606; see also             
          Estate of Wallace v. Commissioner, 95 T.C. at 553-554.                      
               B. External Comparison                                                 
               This second factor compares the employee's compensation with           
          that paid by similar companies for similar services.  Elliotts,             
          Inc. v. Commissioner, 716 F.2d at 1246; see sec. 1.162-7(b)(3),             
          Income Tax Regs.                                                            
               Based on their claimed knowledge of the compensation certain           
          high-technology companies furnished their executives,                       
          petitioner's experts Culbertson and Jones were each of the                  
          opinion that the $722,913 bonus petitioner paid to Mr. Martin was           
          reasonable.  They noted that top executives at many high-                   
          technology companies typically receive stock options as part of             
          their compensation package, and that these stock options can                
          produce substantial compensation in the event the company's stock           
          price rises greatly.  However, as Jones noted, stock options                
          could not be used by petitioner to compensate Mr. Martin, because           
          Mr. Martin already owned a 100-percent stock interest in                    
               Jones was also of the opinion that Mr. Martin was actually             
          entitled to even more compensation than he received, because,               
          according to her, he performed multiple executive roles,                    
          including being petitioner's chief executive officer, vice                  
          president of marketing, vice president of sales, and chief                  

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