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accountant "recommends" to Mr. Bess the total amount of
compensation that petitioner should pay its employees. Mr. Bess
then telephones Mr. Ashare to relay the accountant's
recommendation to him, and Mr. Ashare sets the specific amounts
of compensation that petitioner will pay to him and Ms. Moore.
Petitioner's plan of compensation for Mr. Ashare is to pay him
annually all legal fees that petitioner receives during the year,
less an amount equal to the sum of its corporate expenses
(exclusive of Mr. Ashare's compensation) plus any funds retained
for petitioner's future operations. Petitioner's plan of
compensation, as applied, has allowed it through 1993 to report
no profits subject to Federal income tax, except for its first 7
years of operation and for 1990. From petitioner's incorporation
through 1995, petitioner reported the following profit (loss),
compensation paid to Mr. Ashare, and contributions to Mr.
Ashare's pension fund:
Year Compensation Pension
Ended Profit Paid Contribution
9/30/74 $10,500 $48,500 $7,000
9/30/75 14,999 100,000 10,000
9/30/76 10,715 63,263 7,143
9/30/77 14,940 87,500 9,960
9/30/78 12,563 87,500 8,375
9/30/79 13,616 75,000 9,077
9/30/80 13,014 70,000 8,696
9/30/81 -0- 55,417 7,261
2(...continued)
Herbert Lazarus of Lazarus, Rice & Lopatin, C.P.A.'s, P.C.
Mr. Lazarus has since died.
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