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receipts under a contingent compensation formula. We disagree.
Petitioner's purported compensation formula was at best vague.
Eberl wanted compensation equal to 20-25 percent of petitioner's
gross receipts,2 and he told petitioner's tax advisers of his
wish. However, this purported formula was not in petitioner's
corporate minutes. While we give little or no weight to the
absence of formal board resolutions in closely held corporations,
Levenson & Klein, Inc. v. Commissioner, 67 T.C. 694, 713-714
(1977); Reub Isaacs & Co. v. Commissioner, 1 B.T.A. 45, 48
(1924), it is noteworthy here that the purported agreement was
not in writing, despite the fact that petitioner’s employment and
deferred compensation agreements were in writing. Petitioner did
not pay Eberl 20 percent of its gross receipts during any of its
fiscal years from 1988 to 1993. Eberl's compensation increased
from 14.2 percent of petitioner's gross receipts in fiscal year
1988 to 23 percent in fiscal year 1993. Petitioner consistently
paid Eberl almost all of the income left after it paid its claims
adjusters and overhead expenses.
2 Petitioner's reliance on Boca Constr., Inc. v.
Commissioner, T.C. Memo. 1995-5, for the proposition that its
compensation formula was reasonable is misplaced. In Boca, the
taxpayer consistently applied a bonus formula each year. The
bonus could not exceed the lesser of 25 percent of gross receipts
or 67 percent of profits. In contrast to the instant case, the
formula in Boca ensured that the owners' compensation would not
deprive the taxpayer of all of its net profits. Here, Eberl's
compensation caused petitioner to have no taxable income from
fiscal years 1988 to 1992.
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