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build up petitioner, as they did not want petitioner to borrow
from third parties.
However, petitioner provided insufficient evidence to
establish the amount of the undercompensation of Mr. and Mrs.
Myers during its early years. Neither did petitioner and its
expert address whether such past undercompensation had been
recovered through its 1996 fiscal year in issue. There are only
some vague statements in the record by Mr. Myers and Mrs. Myers
that this past undercompensation (which they and petitioner’s
expert failed to quantify) never had been made up to them. The
fact of undercompensation in the past alone is not enough. For a
reasonable compensation deduction for a subsequent year in issue
to be allowed to a taxpayer-employer for purportedly remedying
alleged undercompensation of an employee in earlier years, the
taxpayer-employer must, among other things, establish (1) the
amount of its undercompensation of that employee in those earlier
years, and (2) that this past undercompensation still remained
unremedied by the later year in issue. Am. Foundry v.
Commissioner, supra at 239-240; Labelgraphics, Inc. v.
Commissioner, T.C. Memo. 1998-343.
During the trial, the Court pointed out the need for
petitioner to provide persuasive evidence establishing what part
of the 1996 fiscal year compensation in issue to Mr. and Mrs.
Myers was catchup pay. Also, as noted supra, the Memorandum of
Board Action covering the compensation package furnished Mr. and
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