- 14 -
Renier had pretax net income of $879,597 during the base period
and after-tax net income of $579,367. The experts had
differences in their normalizing adjustments as follows.
a. Reasonable Compensation for Related-Party
Employees
There is a large difference in the experts’ approaches in
accounting for excess compensation paid to related-party
employees. During the base period, Renier employed decedent and
several members of his family, including Kent and Maria on the
valuation date. Both Mr. Sliwoski and Mr. Kramer concluded that
related-party employees were overcompensated, necessitating a
normalizing adjustment to reported net income to approximate
income if only arm’s-length amounts had been paid for the
services rendered. The experts dispute, however, the amount of
overcompensation.
To compute a reasonable compensation amount for the services
provided by related parties, Mr. Sliwoski assumed that during the
base period Renier required the services of only two family
members, one providing management and sales services and the
other serving as bookkeeper and office manager. Kent and Maria,
respectively, were providing these services on the valuation
date. Using data from a 1991 Dubuque area wage survey, Mr.
Sliwoski concluded that for Renier’s fiscal year ended June 30,
1991, the retail manager/salesperson would earn approximately
$19.23 per hour and work 2,080 hours per year (40 hours per
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011