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interest costs of $100,000 to maintain its cash balances in some
years, while generating savings of as much as $250,000 through
early payment discounts.
3. Petitioner's Operations, Financial Results, and Dividend
History
For 1985, 1992, and 1993, petitioner's gross receipts (net
of returns and allowances), gross income, book net income (before
deducting Herold's compensation), taxable income (before
deducting Herold's compensation), Herold's compensation, and
Herold's compensation percentages (rounded to the nearest dollar)
were:1
Taxable Gross ReceiptsGross Book Taxable Herold's
Year (Net of Returns) Income Net Income IncomeCompensation
1985 $826,544 $660,564 $135,565 $135,565$120,000
1992 37,162,286 4,336,752 1,296,512 1,356,628 1,200,000
1993 45,558,284 4,136,946 1,293,421 1,329,273 1,200,000
Herold's Compensation Percentages
Herold's Compensation Divided by:
Gross
Taxable Receipts Gross Net Income Taxable
Year (Net) Income Per Books Net Income
1985 14.52% 18.17% 88.51% 88.38%
1992 3.23 27.67 92.55 88.45
1993 2.63 29.00 92.77 90.27
1We use 1985 as the base year for comparison purposes. That
was the year immediately after Herold became petitioner's sole
shareholder. At that point, petitioner had lost its sales
representation arrangement with Apple, was facing the impending
insolvency of the three major Apple accounts it had been
cultivating, and was starting over again essentially from
scratch.
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