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he was underpaid. We disagree. Petitioner relies on Dorf’s
testimony that Isidore Klein’s salary in 1993 and 1994 was
reasonable because Isidore Klein was somewhat underpaid in
earlier years and had no long-term financial incentives and
benefits. Dorf’s conclusion that Isidore Klein was underpaid in
earlier years is unconvincing because he disregarded large
bonuses that petitioner paid Isidore Klein in 1984, 1988, and
1989. Dorf’s testimony does not establish and there is no
evidence that petitioner intended any of Isidore Klein’s pay in
1993 and 1994 to be catchup pay. See Pacific Grains, Inc. v.
Commissioner, 399 F.2d 603, 606 (9th Cir. 1968) (court found that
corporate president was not underpaid in part because taxpayer's
board did not state that some part of the payments were for his
prior services), affg. T.C. Memo. 1967-7; H&A Intl. Jewelry, Ltd.
v. Commissioner, T.C. Memo. 1997-467 (pay was not catchup pay
where minutes from shareholder meetings showed that the
compensation for the current year was not intended to reward the
employee's efforts for prior years).
Petitioner points out that Isidore Klein was trying to
develop a portable housing system in 1993 and 1994 and contends
that it could have increased petitioner’s annual revenue from $4
million to $50 million. However, there is no credible evidence
that the portable housing system could have generated $50 million
of revenue. The fact that Steven Klein abandoned work on the
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