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that Norcom could make such compensation payments to Quest based
upon the extent of the services provided by Quest.11 Notably,
respondent has accepted the deductibility of other payments made
under the 1994 consulting agreement.12
It is also clear that for both the 1995 and 1996 payments,
Norcom followed its normal procedure for determining officer
compensation. Specifically, Norcom’s president, Mr. Rahn, made a
recommendation to Norcom’s board of directors of the amount the
salary and bonuses to be paid to Norcom’s officers. For both the
1995 and 1996 payments, Mr. Rahn was involved in determining the
amount of compensation to be paid and in making a recommendation
to Norcom’s board of directors about such compensation.
Petitioners’ claim that Norcom’s payment of compensation to
Quest was deferred until 1995 because its financial condition and
financing arrangements precluded such payments is strongly
supported by the evidence. Prior to the change in ownership in
10(...continued)
as a stipulation that the agreement was revised as alleged by the
petitioners. Although we are not bound by the parties’
stipulated facts, the record is absent of facts indicating that
the stipulation is clearly erroneous. Rule 91(a); Jasionowski v.
Commissioner, 66 T.C. 312, 318 (1976)
11 Similarly, the 1996 consulting agreement provides for
the application of a formula to determine the amount of
additional compensation payments Norcom would make to Quest.
12 Respondent has not alleged that these payments were
contingent payments that are deductible only if they satisfy the
test provided in sec. 1.162-7(b)(2), Income Tax Regs.
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