Compact Equipment Company - Page 8

                                        - 8 -                                         
               Between November 1984 and January 1985, Dunkin and Edward              
          Fryer from the accounting firm (accountants) met with Atkinson to           
          provide tax advice with regard to petitioner’s taxable year                 
          ending March 31, 1985, and growing profitability.  At that                  
          meeting, Atkinson informed the accountants that during                      
          petitioner’s board of directors meeting on April 4, 1983, the               
          board of directors established Atkinson’s compensation package              
          for petitioner’s taxable year ending March 31, 1984, and                    
          subsequent taxable years.5  In response, the accountants                    
          explained to Atkinson that petitioner’s compensation deductions             
          for Atkinson’s salary and bonuses had to be justified and                   
          memorialized.  The accountants advised Atkinson that to                     
          demonstrate reasonable compensation for tax purposes, petitioner            
          should establish a formula based on the profitability of the                
          company to determine Atkinson’s salary and bonuses.  The                    
          accountants also suggested to Atkinson that petitioner maintain             
          minutes for its board of directors meetings.                                
               Following the accountants’ advice, petitioner established a            
          formula to determine Atkinson’s compensation and created and                
          maintained minutes for petitioner’s board of directors meetings.            
          The minutes for the board of directors meetings for March 30,               

               5  Petitioner’s board of directors consisted of the                    
          Atkinsons and a third party.  On June 29, 1984, the board of                
          directors was reduced to two directors consisting of only the               

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011