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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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