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to its employees, and remain profitable. Dennis and Curtis
agreed that bonuses would be paid on a ratio of 3 to 1 with
Dennis receiving three times the bonus amount paid to Curtis.3
Petitioner generally paid bonuses to Dennis and Curtis in
October of the fiscal year to which they related. No bonuses
were paid for the year ending October 31, 1987. Beginning with
the year ending October 31, 1993, a portion of the bonuses, with
interest, was paid to Dennis and/or Curtis in the following
January.
F. Petitioner's Officers and Directors
From 1986 to 1996, Dennis, Curtis, and Dennis' wife Wendy
served as petitioner's officers and directors. Dennis was
president, Curtis was vice president, and Wendy was
secretary/treasurer.
G. Petitioner's Financial Statements and Federal Income Tax
Returns
At all times since its incorporation, petitioner has had a
fiscal year and taxable year ending October 31 and has used the
accrual method of accounting for financial reporting purposes.
Before November 1, 1991, however, petitioner used the cash method
of accounting for tax purposes.
3The stipulated bonus amounts do not reflect the 3-to-1
ratio, in part, because (1) there were differences in the
calendar year reporting for Dennis and Curtis and the fiscal year
used by petitioner, and (2) in some years, a portion of the
bonuses was paid in the following January.
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