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matter how favorable the economic conditions were, petitioner’s
success depended on obtaining jobs through the bidding process
and completing each job within budget. In other words,
petitioner’s success depended on how well Darle, Dean, and Rocky
performed their respective jobs, not on the economy’s health. We
hold that this factor weighs in petitioner’s favor because its
success was not a function of economic circumstances.
E. Comparison of Salaries With Distributions to
Stockholders and Retained Earnings
The Court of Appeals for the Eighth Circuit has stated that
the “absence of dividends to stockholders out of available
profits justifies an inference that some of the purported
compensation really represented a distribution of profits as
dividends.” Paul E. Kummer Realty Co. v. Commissioner, 511 F.2d
at 315; Charles Schneider & Co. v. Commissioner, 500 F.2d at 153;
see also RTS Inv. Corp. v. Commissioner, 877 F.2d at 651.
Petitioner never declared a dividend.
However, corporations generally are not required to pay
dividends. In addition, Darle testified that petitioner did not
pay dividends because it wanted a financial cushion in case it
had difficulty obtaining jobs. Petitioner had retained earnings
of $781,702 as of June 30, 2000. Respondent would argue that
petitioner’s retained earnings exceeded the amount needed to
sustain its business. We do not find these amounts so excessive
as to warrant us to second-guess Darle’s business judgment.
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