Vitamin Village, Inc. - Page 18
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Method FYE 1995 FYE 1996
Guideline cos. CEO compensation $659,849 $755,309
Guideline cos. regression analysis 345,222 339,111
Guideline co. percent of sales 887,641 409,323
Guideline cos. net margins 2,150,000 1,500,000
Average of the methods 1,010,678 750,936
The notice of deficiency allowed petitioner to deduct
$1,044,809 and $367,382 as compensation to Mr. Reeves in the
fiscal years at issue, respectively. Mr. Hakala’s report
concluded the maximum reasonable compensation payable to Mr.
Reeves in the years at issue was $1 million and $750,000,20
On cross-examination, Mr. Hakala conceded he was unable to
consider all the facts and circumstances needed to conduct a
comprehensive analysis because his financial review was limited
to petitioner’s revenue and net income from FY 1985 through FY
1994 and petitioner’s tax returns for the years at issue. He
testified that additional information could have made a material
impact on his conclusions.22
20 See supra note 13.
21 Mr. Hakala’s reasonable compensation determinations for
the years at issue were the rounded averages of figures computed
by applying the four methods to the guideline companies’
financial information. See table supra p. 18.
22 In Mr. Hakala’s report and at trial, he stated that he
reserved the right to amend the report to reflect consideration
of additional information.
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Last modified: November 10, 2007