Vitamin Village, Inc. - Page 7




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          D.   Petitioner’s Employee Compensation                                     
               The compensation petitioner paid Mr. Reeves each year from             
          1982 through 1996 was:7                                                     
          FYE June 30            Compensation                                         
               1982           $15,707                                                 
               1983                16,100                                             
               1984                26,000                                             
               1985                42,000                                             
               1986                47,000 (includes $18,240 bonus)                    
               1987                11,000                                             
               1988                -0-                                                
               1989                22,444                                             
               1990                4,000                                              
               1991                -0-                                                
               1992                -0-                                                
               1993           310,000                                                 
               1994                182,300                                            
               1995           2,278,000 (includes $2 million bonus)                   
               1996           1,012,000 (includes $1 million bonus)                   
               From FY 1982 through FY 1992, Mr. Reeves’s salary remained             
          low or he was unpaid so that profits could be invested to expand            
          petitioner’s business.  Beginning in FYE June 30, 1993,                     
          petitioner’s business improved, and profits substantially                   
          increased.  Petitioner deducted the compensation paid to Mr.                
          Reeves as officer compensation on its Forms 1120, U.S.                      
          Corporation Income Tax Return, in the fiscal years at issue.                
               In FYE June 30, 1995, petitioner paid $374,884 in salary and           
          wages to its employees including $95,000 in bonuses, and in FYE             
          June 30, 1996, petitioner paid $348,837 in salary and wages to              


               7 The table does not include amounts UMI or CTC paid to Mr.            
          Reeves.                                                                     






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