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president of Myers Foundations. On July 31, 1996, Mr. Myers’
stock interest in Myers Foundations was redeemed, and Kurt became
its sole shareholder.
Mr. Myers also helped Bill Collins, a former employee of
petitioner and the B & D partnership, establish Collins Concrete
Construction, Inc. (Collins Concrete), another foundation and
flat work construction company. Mr. Collins and Mr. Myers
together owned Collins Concrete. By 1996, Mr. Myers’ entire
stock interest in Collins Concrete had been redeemed.
During 1996, Mr. Myers also engaged in certain cattle
breeding and feeding activities and horse breeding and showing
activities.
In the notice of deficiency, respondent disallowed
petitioner’s deduction of $353,911 of the $875,000 of salaries
paid Mr. Myers and Mrs. Myers for its fiscal year ended July 31,
1996, but did not make any adjustment to the $238,000 of bonuses
paid for that year and the preceding year. The notice of
deficiency stated, in pertinent part:
Issue A: Whether the compensation paid to the
shareholder/officers of the corporation are reasonable
given the duties and services provided to the company.
Reconciliation: FYE 7/31/96
Per Return [$]1,113,800
Per Exam 759,889
Adjustment 353,911
The total “reasonable” compensation amount was
determined as follows:
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