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Total Officer Percentage of Percentage of
FYE July 31 Compensation Gross Income Net Income
1987 $36,750 8.67 63.04
1988 67,450 7.87 47.59
1989 58,050 7.81 55.44
1990 112,650 11.52 71.25
1991 186,100 13.22 74.14
1992 230,000 11.20 98.35
1993 613,785 18.90 89.05
1994 902,500 27.44 75.68
1995 702,500 19.30 90.22
1996 1,113,800 24.42 105.88
For the 1996 fiscal year in issue, petitioner had a net loss
after taxes of $61,904 as a result of the $586,500 salary and
$163,000 bonus paid to Mr. Myers and the $288,500 salary and
$75,800 bonus paid to Mrs. Myers. These payments equaled 105.88
percent of petitioner’s net income for that year (before taxes
and officer compensation). Petitioner that year also experienced
a $155,901 reduction in its equity ($534,443 net assets and
equity at the beginning of the year, less $378,542 net assets and
equity at yearend, without regard to the obligation petitioner
took on in that year to pay an additional $488,000 of “deferred
compensation” to Mr. and Mrs. Myers).
Respondent’s expert acknowledged that Mr. and Mrs. Myers
were undercompensated during petitioner’s early years of
operation. However, as discussed more fully infra pp. 43-47,
respondent and petitioner disagree over whether Mr. Myers and
Mrs. Myers remained underpaid for their past services in prior
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