Labelgraphics, Inc. - Page 27

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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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