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companies dealing with the development and sales of nutritional
products and not on companies that provided branding, marketing,
and advertising services.12
C. Character and Condition of the Company
This factor requires the Court to focus on petitioner’s
size as measured by its sales, net income, or capital value; the
complexities of the business; and general economic conditions.
Elliotts, Inc. v. Commissioner, supra at 1246.
Petitioner was incorporated in FYE May 31, 1996, with only
$487 in cash, and used equipment, including an automobile, with a
total fair market value of $53,555. Although petitioner
generated total gross receipts of $1,055,433, petitioner’s net
income was only $38,886 in its initial year of operation. All
but $55,433 of its gross receipts were generated from one
customer, its sister corporation VVI. Petitioner had a small
staff and paid wages of $31,757 to its employees. Therefore,
petitioner was a relatively small company whose operations were
not particularly extensive or complex.
D. Conflict of Interest
This factor examines whether a relationship exists between
the company and the employee which may permit the company to
disguise nondeductible corporate distributions as section
12 See Vitamin Vill., Inc. v. Commissioner, T.C. Memo. 2007-
272, for an analysis of Mr. Hakala’s report.
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Last modified: November 10, 2007