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Elliotts, Inc. v. Commissioner, 716 F.2d at 1246; see E. Wagner &
Son, Inc. v. Commissioner, 93 F.2d 816, 819 (9th Cir. 1937).
Petitioner was a relatively small label and printing company
that grossed more than $4 million annually for its 1988 through
1990 fiscal years. It had secured itself a nice market niche in
supplying certain custom-designed products to a number of high-
technology companies, thus enabling it to earn high profit
margins on its product sales.
Moreover, as petitioner's directors correctly anticipated in
June 1990, its recently developed clean room labels would produce
significant profits and give petitioner a competitive advantage
in future years. From 1991 through 1996, the new clean room
labels helped reverse the slight decline in business petitioner
experienced during its 1989 and 1990 fiscal years. Also, Mr.
Martin's 100-percent stock interest in petitioner was
subsequently appraised by a business valuation company to have a
fair market value of $9.25 million, as of October 25, 1991. In
years after 1990 and 1991, the labels were probably the single
most important factor in spurring petitioner to even greater
sales and profitability.
All in all, from its inception through the 1990 fiscal
year, petitioner has been an extremely well managed and
profitable company. It had a very lean management team and by
the 1990 fiscal year enjoyed an excellent reputation in the label
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