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compensation that petitioner paid to its sole shareholder/chief
executive officer could not be deducted under section 162(a).
We must decide whether petitioner may deduct the full
compensation of $1.2 million. We hold it may. Unless otherwise
stated, section references are to the Internal Revenue Code in
effect for the years in issue. Rule references are to the Tax
Court Rules of Practice and Procedure. Most dollar amounts are
rounded to the nearest dollar.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulations of fact and the exhibits submitted therewith are
incorporated herein by this reference. Petitioner is an accrual
method, calendar year C corporation, the principal office of
which was in Eden Prairie, Minnesota, when it petitioned the
Court. Stephan Herold (Herold) has been petitioner's president
and chief executive officer since it was founded. He has been
petitioner's sole director since April 1985.
1. Petitioner's Business History
Petitioner was originally a division of Stan Clothier Co.
(SCC), which was primarily a manufacturer's representative for
industrial components. The division that was to become
petitioner was a manufacturer's representative for consumer
electronics components. When it was first spun off in 1980,
petitioner was named Clothier-Herold Co. Stan Clothier owned
50 percent of petitioner's stock, and Herold owned the rest. In
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