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petitioner’s vice president for operations, comptroller, and
purchasing agent. He set priorities for jobs to be performed in
the factory and supervised petitioner’s bookkeeper. He signed
some of petitioner’s quarterly Federal income tax returns and
information statements.
Macken was petitioner's bookkeeper from May 1993 through
1995. Paterson worked at petitioner from April 1994 until the
end of 1995. Her work included answering phones, taking orders,
and printing and mailing invoices.
In 1993, 1994, and 1995, Reinaldo (Ray) Cruz was
petitioner's factory foreman, and Felix Ortega received incoming
raw material and shipped finished products. Ray Cruz began
working for petitioner in 1973, and Felix Ortega in 1985.
2. Compensation Paid by Petitioner
a. Isidore Klein
From 1980 through 1994, Isidore Klein set his own salary
based on a percentage of petitioner’s gross sales. In 1980, the
board of directors (i.e., Isidore and Gertrude Klein) agreed that
petitioner would pay Isidore Klein a salary of 8 percent of gross
sales but would not reimburse him for his expenses. In 1993 and
1994, Isidore Klein set his salary at 10 percent of petitioner’s
gross sales. In 1993 and 1994, petitioner paid Isidore Klein
$1,000 per week plus $70,000, $80,000, and $80,000, respectively,
for the first three quarters, and payments just before yearend of
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