Leo J. Polack - Page 5




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          portion of the VARI to the customer or by reducing that                     
          customer’s service fees.  In 1992, ZSI transferred to its                   
          customers, by direct payment or reduction in fees, $117,426, or             
          10.24 percent, of the $1,147,100 in gross VARI it received; ZSI             
          retained the other $1,029,674, or 89.76 percent, of the gross               
          VARI received.                                                              
               Although ZSI was profitable in 1991 and 1992, petitioner               
          expected ZSI would have to share with its customers substantially           
          more of the VARI in future years.  Petitioner feared that the               
          presorting division’s low profit margin and tough competition,              
          combined with a further reduction in retained VARI, would strain            
          ZSI’s finances.                                                             
          Gifts of ZSI Stock                                                          
               Immediately prior to the gifts at issue herein, ZSI’s stock            
          was held as follows:                                                        











               2(...continued)                                                        
          barriers to entry into ZSI’s industry.  In 1992, ZSI purchased a            
          competing company with small profits for $100,000 to $125,000 and           
          procured a covenant not to compete from the seller.  By the end             
          of 1992, ZSI owned at least three current covenants not to                  
          compete.                                                                    





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