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July 31 fiscal year, and Doyce Gentry and his sons were cash
method taxpayers using the calendar year.
Petitioner had sufficient funds in its bank accounts prior
to the end of its 1994 fiscal year to pay $100,000 in
compensation to Doyce Gentry and his sons. Petitioner did not
pay compensation to Doyce Gentry or his sons until after the end
of that fiscal year. Indeed, except for the $100,000 in
compensation at issue here, petitioner had not awarded and had
not paid any compensation to Doyce Gentry or his sons from the
time of its formation in 1991 until after the end of petitioner’s
1994 fiscal year.
Petitioner’s bylaws provided that its officers and employees
shall receive salaries and other compensation “as shall be
determined by resolution of the Board of Directors * * * or by
employment contracts entered into by the Board of Directors.”
The Board of Directors did not adopt any formal resolution
awarding or setting the amount of the compensation prior to the
end of petitioner’s 1994 fiscal year. Nor was there any prior
written agreement between petitioner and the Gentrys, such as an
employment contract, setting the amount of compensation that
would be awarded to them.
Petitioner took no formal action prior to the end of its
1994 fiscal year to segregate physically or set apart the
$100,000 in compensation for Doyce Gentry and his sons. Nor did
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