-8-
4. Petitioner's Employees
Eberl signed an employment agreement with petitioner on July
19, 1988. The agreement provided that petitioner would pay Eberl
a base salary and, if the board of directors approved, a bonus.
The contract did not specify the amount of the base salary.
Eberl's salary and bonus were set at the annual meeting of
petitioner's board of directors near the end of each taxable
year.
Grace Eberl was petitioner's office manager, bookkeeper, and
secretary beginning in 1987. Her employment agreement with
petitioner did not specify how much she would be paid. Her
annual salary was set for the next fiscal year at each annual
meeting of petitioner's board of directors. Petitioner paid no
bonuses to Grace Eberl.
Before fiscal year 1991, Kirk and Grace Eberl were
petitioner's only employees. Beginning in fiscal year 1991,
petitioner employed Grace Eberl's mother, Carol Soucie (Soucie),
as office manager, and some part-time clerical staff. Soucie
began to work full time around 1992. Petitioner did not pay a
bonus to Soucie in fiscal years 1992 and 1993.
5. Compensation Paid by Petitioner
In 1988, petitioner sought the advice of its attorney,
Richard Elrod (Elrod), certified public accountant, Mark Lehrner
(Lehrner), and a financial adviser, George Volland (Volland),
concerning its compensation for Eberl. Elrod, Lehrner, Volland,
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