-31-
13. Conclusion
Petitioner's increase in gross receipts resulted not only
from the huge volume of catastrophic claims work during the years
in issue, but also from Eberl's long hours, personal contacts,
and his knowledge of the catastrophic claims business. It would
be reasonable for petitioner to compensate him well for that
work. However, the problem from petitioner's stand point is that
Eberl chose to leave petitioner with virtually nothing to show
for his work. Carey testified that it would be reasonable to
expect petitioner to have pretax earnings of about $2 million for
fiscal year 1992 and about $1 million for fiscal year 1993.
Carey acknowledged that if petitioner had retained earnings of $2
million in fiscal year 1992, it would still have had $2,340,0004
to pay Eberl, and that compensation to Eberl of $2,340,000 in
that year might be reasonable. Carey did not change his
conclusion that it would be unreasonable to pay Eberl more than
$500,000 in fiscal year 1992 and $400,000 in fiscal year 1993,
but neither Carey nor respondent gave any convincing reason why
petitioner should have retained more than $2 million in earnings.
This suggests that reasonable compensation to Eberl for fiscal
year 1992 could be as much as $2,340,000, the difference between
the amount paid to Eberl ($4,340,000) and the amount of retained
4 Carey said $2,200,000, not $2,340,000. However, the
record shows that $2,340,000 is the correct amount ($4,340,000 -
$2,000,000 = $2,340,000).
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