Damron Auto Parts, Inc. - Page 4




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               On October 24, 1994, Mr. Damron and his wife entered into a            
          Marital Settlement Agreement which stated that petitioner’s stock           
          was worth $1,200,000.  In 1995, Mr. Damron and his wife were                
          divorced as a result, in part, of his grueling work schedule.  In           
          July 1996, Mr. Damron and his wife were remarried.                          
          III.  Compensation                                                          
               During 1985 through 1991, petitioner’s accountant formulated           
          compensation for Mr. Damron and Mr. Owen reflecting base salaries           
          and bonuses.  Mr. Damron’s bonus was 10 percent of wholesale                
          sales.  Petitioner paid Mr. Damron only a portion of the                    
          compensation thus formulated, resulting in underpayments of                 
          $191,251, $278,963, $359,903, $430,370, $437,280, $587,340, and             
          $364,332, relating to 1985 through 1991, respectively.  Effective           
          February 20, 1990, Mr. Damron, his wife, and Mr. and Mrs. Owen              
          signed a Capital Accumulation Verification (Verification)                   
          forgiving any debts petitioner owed them.                                   
               During 1992 through 1995, petitioner’s accountant formulated           
          Mr. Damron’s bonus as 10 percent of wholesale sales or, if less,            
          50 percent of any excess of petitioner’s income (i.e., after                
          wages) over $500,000, or 25 percent of any such excess over                 
          $250,000.  Petitioner’s payments to Mr. Damron and gross profits            
          were as follows:                                                            










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