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1998, $242,227 in 1999, and $292,474 in 2000. Respondent
disallowed these deductions because he determined that the
compensation petitioner paid to its shareholder-employees was
unreasonable under section 162(a).1 Petitioner timely petitioned
this Court. After concessions, the remaining issue for decision
is whether petitioner’s payments to its shareholder-employees
were reasonable for the years in issue. We hold that they were.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. When petitioner
petitioned this Court, its principal place of business was in
Fargo, North Dakota.
A. General Background
Darle Miller (Darle) and his father entered the drywall
construction business in the mid-1970s. Darle acquired the
drywall construction business from his father before 1980 and
initially operated it as a sole proprietorship. Darle
incorporated the business on July 1, 1980, as a C corporation.
Darle paid $2,000 for 200 shares of petitioner’s stock, and
Darle’s brother Dean Miller (Dean) paid $2,500 for 50 shares of
1Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the years in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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