- 60 -
According to its financial statements, petitioner had gross
receipts of $5,312,291 in 1995 and $6,141,479 in 1996. After
payment of compensation, petitioner had a net loss of $13,944 in
1995 and net income of $243,129 in 1996. In 1995, petitioner
paid $1,292,888 in officer compensation (or more than 100 percent
of petitioner's net income before payment of officer
compensation) and 24.4 percent of gross receipts. In 1996,
petitioner paid $1,099,765 in officer compensation (or 81.9
percent of petitioner's net income before payment of officer
compensation) and 17.9 percent of gross receipts. Although
petitioner reported net income of $204,583 on its 1995 Form 1120,
the positive net income is attributable in large part to the
section 481(a) adjustment that artificially increased
petitioner's income by $409,289 for that year.
We think this factor favors respondent for 1995 and is
neutral for 1996.
9. Comparison of Salary to Distributions to Stockholders
and Retained Earnings
The failure to pay more than a minimal amount of dividends
may suggest that some of the amounts paid as compensation to the
shareholder-employee are dividends. See id. at 1322-1323;
Edwin's, Inc. v. United States, 501 F.2d 675, 677 n.5 (7th Cir.
1974); Charles Schneider & Co. v. Commissioner, 500 F.2d 148 (8th
Cir. 1974). Corporations, however, are not required to pay
dividends; stockholders may be equally content with the
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