Vitamin Village, Inc. - Page 8
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its employees including $125,000 in bonuses. Petitioner deducted
these amounts as salaries and wages paid to its employees on its
Forms 1120 in the fiscal years at issue.
Petitioner did not maintain a compensation policy for its
officers and employees. However, all 12 of petitioner’s
memorandums of consent to corporate action from FYE June 30, 1985
through 1996, indicated Mr. Reeves received less than full and
adequate compensation for his role as petitioner’s president and
that petitioner would give future consideration to increasing Mr.
Reeves’s salary and/or award future discretionary bonuses to
reimburse him for his past and present service.
The bonuses Mr. Reeves and petitioner’s other employees
received were not based upon a formula or previously set forth in
writing. Each bonus was determined and paid at the end of the
fiscal year when petitioner could ascertain its cash availability
and determine what would be a reasonable bonus, taking into
consideration previous underpayments.
E. Advertising Agreement With UMI
In the fiscal year previous to UMI’s formation, petitioner’s
gross skin care and tanning products sales totaled $600,000 with
$124,000 profit. In an effort to increase sales, in June 1995
(in petitioner’s FYE June 30, 1995), petitioner entered into an
agreement with UMI by which, in exchange for $1 million, UMI
agreed to brand, market, and advertise the skin care and tanning
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Last modified: November 10, 2007