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Respondent argues that the annual salary bonus paid to Meyer
of $245,905 for 1990 and of $250,000 for 1991 and 1992
constitutes disguised consideration for acquisition of the assets
of MCB. Respondent also argues that because Meyer intended to
remain with International and because International was already
achieving annual net profits of $700,000, the annual net profits
contingency was not significant.
Petitioners argue that the payments made each year as a
salary bonus constitute reasonable compensation for services
rendered by Meyer to International and are fully deductible as
ordinary and necessary business expenses.
We agree with petitioners with regard to the salary bonus.
Meyer’s receipt each year of the salary bonus was contingent
on Meyer's rendering significant services to International.
During each year, Meyer managed the operations and expansion of
International, and Meyer maintained virtually all of the former
clients of MCB. The earnings of International depended primarily
on the efforts of Meyer.
In the 2 years prior to the acquisition of the assets of
MCB, Meyer received annual salaries from MCB of $600,000 and
$800,000. During each of the years in issue and treating the
salary bonus as part of his annual compensation for services
rendered and not taking into account amounts paid under the
covenant not to compete, Meyer's total annual compensation from
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