- 40 -
We note that the RMA ratios fluctuate greatly from year to
year, and even the relative ratios (i.e., comparisons of the
ratios for smaller companies with the ratios for larger
companies) fluctuate greatly. None of the experts discusses the
factors that led to the RMA ratio fluctuations. Ding attempted
to “smoothen” the relevant ratios. See supra table 6 for 75th
percentile numbers. For 90th percentile numbers, Ding used 6.0
for 1995 and 6.3 for 1996. Hakala did not discuss whether there
should be a different approach to the smoothening process or
whether the RMA ratio amounts should be used without any
smoothening. In the absence of criticism by Hakala, we are
willing to follow Ding’s smoothening approach. We apply the RMA
90th percentile ratios to petitioner’s 1995 and 1996 sales to
obtain total shareholder-employee reasonable compensation. From
the totals thus obtained, we subtract the amounts petitioner paid
to Mary, which have been agreed to be reasonable compensation for
Mary’s services.
However, our willingness to follow Ding’s analysis regarding
Jack’s 90th-percentile status, at least for 1995 and 1996, does
not lead us to Ding’s conclusions that all of Jack’s compensation
is reasonable for each of these years. As Ding acknowledged at
trial, the compensation that petitioner paid to Jack for each of
these years, as a percentage of petitioner’s sales, was
Page: Previous 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 NextLast modified: May 25, 2011