- 25 -
(3) The bonus amounts were not set in accordance with any
formula or other detailed arrangement agreed upon in advance.
Rather, they were determined and paid at the end of the year,
when petitioner knew its profitability for that year. Thus,
Jack’s compensation was set on an ad hoc basis.
(4) Petitioner did not pay dividends in 1995 or 1996, even
though it had made a distribution in 1993 and paid dividends in
1994, and profitability before officer’s compensation was greater
in 1995 and 1996 than it was in the two earlier years.
(5) Petitioner’s average return on equity, which measures
the percent of profit before taxes as a percentage of tangible
net worth, was below that of comparable companies for the years
in issue.
At trial, both parties presented the reports and testimony
of expert witnesses. Petitioner’s experts were Sledge and Mae
Lon Ding, hereinafter sometimes referred to as Ding.
Respondent’s expert was Scott D. Hakala, hereinafter sometimes
referred to as Hakala.
Before admitting expert testimony into evidence, the trial
judge is charged with the gatekeeping obligation of ensuring that
the testimony is both relevant and reliable. Kumho Tire Co. v.
Carmichael, 526 U.S. 137, 147 (1999); Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993); Caracci v.
Commissioner, 118 T.C. 379, 393 (2002), on appeal (5th Cir. Oct.
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011