SCOTUS Reports

Tag: Business Depression

  • Gillette Auto Supply, Inc., 29 T.C. 766 (1958): Excess Profits Tax Relief and the Definition of ‘Industry’

    Gillette Auto Supply, Inc., 29 T.C. 766 (1958)

    To qualify for excess profits tax relief, a taxpayer must demonstrate that it meets specific requirements, including showing its business was depressed in the base period and that its industry experienced conditions that justify relief; defining the relevant “industry” is crucial to this determination.

    Summary

    Gillette Auto Supply, Inc. sought relief from excess profits tax, arguing that its base period earnings were depressed under several provisions of the Internal Revenue Code. The Tax Court, however, determined that Gillette did not qualify for relief. The court focused on the proper definition of the taxpayer’s industry, concluding that Gillette was a wholesaler of plumbing and heating equipment, not a part of the broader construction industry as the taxpayer argued. The court found that Gillette’s business was not depressed during the base period and that it did not meet the requirements for relief under any of the cited Code sections. The court emphasized the importance of industry definition in applying the tax relief provisions.

    Facts

    Gillette Auto Supply, Inc. sought relief from excess profits tax under several provisions of the Internal Revenue Code related to depressed business conditions during the base period. The taxpayer contended its business was depressed because the construction industry (or an industry closely tied to it) was depressed during the base period. The Commissioner of Internal Revenue argued that Gillette was part of a different industry (wholesale distributors of plumbing and heating supplies) that was not depressed during the same period. The taxpayer presented economic data related to the construction industry nationwide to support its claim, while the Commissioner presented data about the wholesale distribution industry. Gillette’s sales area was restricted to Montana, Minnesota, North and South Dakota, and portions of Wyoming, Michigan, and Wisconsin.

    Procedural History

    The case was heard by the Tax Court. The court reviewed the evidence, including economic data and expert testimony, and ultimately ruled against the taxpayer. The court’s decision was based on a determination that Gillette did not meet the requirements for excess profits tax relief under the relevant code sections.

    Issue(s)

    1. Whether the taxpayer’s business was depressed during the base period because an industry of which it was a member was depressed by reason of temporary economic events unusual in the case of such industry.

    2. Whether the taxpayer’s business was depressed in the base period by reason of conditions generally prevailing in an industry of which the taxpayer was a member, subjecting such taxpayer to a profits cycle differing materially in length and amplitude from the general business cycle.

    3. Whether the taxpayer’s business was depressed in the base period by reason of conditions generally prevailing in an industry of which the taxpayer was a member, subjecting such taxpayer to sporadic and intermittent periods of high production and profits which periods were inadequately represented in the base period.

    Holding

    1. No, because the taxpayer failed to establish that it was a member of a depressed industry, since the court found the relevant industry to be wholesale distribution of plumbing and heating supplies and equipment.

    2. No, because the taxpayer’s profits cycle did not materially vary in length and amplitude from the general business cycle.

    3. No, because the taxpayer’s earnings experience could be segregated into cyclical patterns, and therefore did not meet the criteria for sporadic periods of high production and profits.

    Court’s Reasoning

    The court’s reasoning focused on the definition of “industry” and whether the taxpayer’s business was depressed. The court considered the definition of “industry” from the Bulletin on Section 722 and Regulations 109. It concluded that the taxpayer was a member of the wholesale distribution industry of plumbing and heating supplies and equipment, and not the broader construction industry. “In most general terms an ‘Industry’ comprises a group of business concerns sufficiently homogeneous in nature of production or operation, type of product or service furnished, and type of customers, so as to be subject to roughly the same external economic circumstances affecting tlieir prices, volume and profits.” The court found no evidence that the wholesale industry, as defined by the court, was depressed during the base period. The court cited the taxpayer’s failure to prove a material variance in the length and amplitude of its profit cycles, comparing them with the overall business cycle. Therefore, the court denied relief under 722(b)(3)(A). The court noted that the taxpayer’s earnings experience could be segregated into the same profits cycles as the profits of all corporations in the United States and the profits of all corporations in taxpayer’s sales area, so it did not meet the criteria under 722(b)(3)(B).

    Practical Implications

    This case underscores the critical importance of defining the relevant “industry” when seeking tax relief under provisions like Section 722 of the Internal Revenue Code. Attorneys should carefully analyze the nature of their client’s business and the scope of its market to accurately determine its industry membership. A broad, unsubstantiated claim of industry membership (such as inclusion in the “construction industry”) will be insufficient. The court’s scrutiny of economic data and the requirement to establish a connection between industry conditions and the taxpayer’s specific business performance highlights the need for strong, relevant evidence. The case also illustrates how courts may interpret statutory language and regulations to define and apply economic concepts. Later cases involving the interpretation of tax relief provisions for excess profits could be affected by this decision.

  • The Fair Store, Inc. v. Commissioner, 20 T.C. 289 (1953): Extraordinary Circumstances Required for Excess Profits Tax Relief

    The Fair Store, Inc. v. Commissioner, 20 T.C. 289 (1953)

    To qualify for relief under the excess profits tax regulations due to a depressed business, a taxpayer must demonstrate that the depression resulted from temporary economic circumstances unusual for that specific business, not merely from poor business decisions or general market conditions.

    Summary

    The Fair Store, Inc. sought relief from excess profits taxes, claiming its business was depressed during the base period due to the failure of a refinancing plan and other factors. The Tax Court denied relief, finding that the business’s poor performance was not due to temporary, unusual economic circumstances as required by the statute. Instead, the court determined the decline resulted from poor management decisions, unwise business policies, and general market competition. The court emphasized that the refinancing failure was not due to a unique circumstance but to the general state of the stock market. The court also found the taxpayer changed the character of its business by acquiring additional stores.

    Facts

    The Fair Store, Inc. (taxpayer) acquired two department stores and contracted to purchase a third. The purchase was contingent on securing $3 million in preferred stock financing. The taxpayer’s financing failed due to a downturn in the stock market. The taxpayer also adopted a “no-profit plan” and “share-the-profit plan,” and reduced inventory. The taxpayer’s business declined during the base period (1936-1939). The taxpayer’s owners had no prior experience in running a department store. The Taxpayer sought relief under section 722(b)(2) and 722(b)(4) of the Internal Revenue Code for excess profits tax relief. The Commissioner of Internal Revenue denied relief.

    Procedural History

    The case was heard before the United States Tax Court. The Tax Court reviewed the Commissioner’s denial of the taxpayer’s claims for relief under Section 722 of the Internal Revenue Code of 1939.

    Issue(s)

    1. Whether the taxpayer’s business was depressed due to temporary economic circumstances unusual in the taxpayer’s case, entitling it to relief under section 722(b)(2).

    2. Whether the taxpayer changed the character of its business entitling it to relief under section 722(b)(4).

    Holding

    1. No, because the failure to secure refinancing and business depression resulted from general economic conditions and poor business decisions, not from unusual circumstances.

    2. Yes, because acquiring new stores and changing business policies constituted a change in the business’s character.

    Court’s Reasoning

    The court analyzed the requirements for excess profits tax relief. The court determined that the refinancing failure was not due to a unique circumstance but to the general state of the stock market. The court found that the downturn in the stock market that prevented the refinancing was not a “temporary economic circumstance unusual in the case of the taxpayer.” The court cited cases holding that the statute was not meant to counteract bad business decisions or unwise policies. The Court noted the taxpayer’s decision to buy additional stores, lack of experience, and unwise business policies. The court emphasized that the taxpayer’s management had made a series of poor decisions, including adopting a “no-profit plan” and reducing inventory at the wrong time. The court concluded that the taxpayer failed to prove any “factor affecting the taxpayer’s business which may reasonably be considered as resulting in an inadequate standard of normal earnings.” The court held that the taxpayer’s business changed with the acquisition of two additional stores.

    Practical Implications

    This case is a good example of the stringent requirements of extraordinary circumstances needed to gain relief from excess profits tax. Attorneys handling similar cases must: prove the existence of genuine, temporary, and unusual economic conditions specific to the taxpayer, showing that poor business decisions or general market downturns are not enough to trigger the relief. The court’s emphasis on unusual circumstances means that a taxpayer needs to establish a clear nexus between external, unusual events and a demonstrable negative impact on their business performance. The case also highlights the importance of solid financial records. Later cases dealing with similar tax code provisions may cite The Fair Store, Inc. to emphasize the need for demonstrating unusual circumstances, rather than poor management or market conditions, to get excess profits tax relief.

  • Hearn Department Stores, Inc. v. Commissioner, 23 T.C. 266 (1954): Tax Relief for Excess Profits and Defining “Economic Circumstances Unusual”

    <strong><em>Hearn Department Stores, Inc. v. Commissioner</em></strong>, 23 T.C. 266 (1954)

    Under the 1939 Internal Revenue Code Section 722, excess profits tax relief may be granted if the business’s average base period net income is an inadequate standard of normal earnings due to specific circumstances, including temporary economic hardships unique to the taxpayer.

    <p><strong>Summary</strong></p>

    Hearn Department Stores sought excess profits tax relief under Section 722 of the 1939 Internal Revenue Code, claiming its base period earnings were depressed. The Tax Court denied relief, finding the alleged economic circumstances (inability to secure refinancing) were not unusual for Hearn. The court determined that Hearn’s business struggles stemmed from poor management decisions and intense competition. The court provided an in-depth examination of the taxpayer’s performance, market conditions, and business strategies, ultimately concluding that the taxpayer failed to demonstrate its entitlement to tax relief as per section 722(b)(2) or 722(b)(4) of the IRC.

    <p><strong>Facts</strong></p>

    Hearn Department Stores, a New York corporation, acquired the Hearn retail department store business in 1932. The business was struggling, and Hearn initiated expansion, acquiring Bronx and Newark stores in 1937 and planning a third in Jamaica, NY. This was funded in part by borrowed capital. Hearn implemented a “no-profit plan” and a “share-the-profit plan,” both unsuccessful. Despite these efforts, sales declined. Hearn was unable to complete financing to complete acquisition of a third store. Hearn applied for tax relief under Section 722 of the Internal Revenue Code.

    <p><strong>Procedural History</strong></p>

    Hearn Department Stores filed excess profits tax returns for fiscal years ending January 31, 1941, through January 31, 1946. The Commissioner of Internal Revenue disallowed the company’s applications for excess profits tax relief under Section 722 of the Internal Revenue Code of 1939. The case went to the United States Tax Court.

    <p><strong>Issue(s)</strong></p>

    1. Whether Hearn’s business was depressed during the base period due to temporary economic circumstances unusual to the taxpayer as per Section 722 (b)(2)?

    2. Whether Hearn changed the character of its business such that it warranted relief under Section 722 (b)(4)?

    <p><strong>Holding</strong></p>

    1. No, because Hearn’s financial difficulties and sales declines were due to poor business decisions and competition, not temporary economic circumstances unusual to the taxpayer.

    2. Yes, because the opening of branch stores and certain operational changes constituted a change in the character of the business. However, this did not, by itself, warrant relief because, under (b)(4), the push-back rule would not result in relief.

    <p><strong>Court's Reasoning</strong></p>

    The court focused on whether the lack of refinancing constituted a temporary economic circumstance unusual to the taxpayer, as required by Section 722(b)(2). It concluded that the failure to obtain refinancing was not due to any economic circumstance peculiar to the taxpayer; instead, the court noted that the stock market decline and general economic conditions affected many companies. The court cited the taxpayer’s unwise business policies, including a “no-profit plan” and the acquisition of additional stores, as primary causes of the poor performance. The court drew a distinction between errors of business judgment and unusual temporary economic circumstances.

    The court further held that, while the acquisition of the Bronx and Newark stores in 1937 did constitute a change in the character of the business, the evidence did not support the necessary causal connection to establish a justification for tax relief under the ‘push-back’ rule, as any relief would have started earlier, not later, than the base period under consideration. The court stated that the petitioner had not established that the excess profits taxes it paid for the years in question were excessive and discriminatory.

    <p><strong>Practical Implications</strong></p>

    This case underscores that tax relief under Section 722 requires a strong showing that a business’s poor performance during the base period was due to temporary economic circumstances, rather than poor management decisions, market competition, or inherent business risks. The case provides a framework for analyzing whether circumstances are “unusual” to the taxpayer, including examining the specific causes of business depression and distinguishing them from general economic conditions. It cautions against using tax law to correct or compensate for poor business judgments. When considering a claim for tax relief under similar provisions, attorneys should carefully evaluate the taxpayer’s business history, management decisions, and market conditions to demonstrate a clear causal link between specific external factors and the base period’s financial outcomes. The implications would extend to the current tax code, highlighting that economic hardship must be proven as a cause of the loss, and not the result of the lack of foresight or poor choices.

  • E.E. Elmore Wholesale Dry Goods, Inc. v. Commissioner, 18 T.C. 186 (1952): Establishing “Normal Earnings” for Excess Profits Tax Relief

    E.E. Elmore Wholesale Dry Goods, Inc. v. Commissioner, 18 T.C. 186 (1952)

    To qualify for excess profits tax relief under Section 722 of the Internal Revenue Code, a taxpayer must demonstrate that its average base period net income is an inadequate standard of normal earnings due to specific, qualifying factors and must prove a direct causal link between those factors and a depression or interruption of their business.

    Summary

    E.E. Elmore Wholesale Dry Goods, Inc. sought relief from excess profits tax under Section 722 of the Internal Revenue Code, arguing its average base period net income was an inadequate standard of normal earnings due to a drought, reentry into the Mexican market, and a decline in the cotton industry. The Tax Court denied relief, finding no evidence linking the drought to business interruption, the Mexican market reentry was insignificant, and the company’s overall business was not depressed because increased appliance sales offset losses in the dry goods sector. The court emphasized that Section 722 requires a clear demonstration of business depression directly caused by unusual circumstances.

    Facts

    E.E. Elmore Wholesale Dry Goods, Inc. was a wholesale business operating primarily in Texas. The company experienced a drought in parts of its trading area. It had previously engaged in trade in Mexico during the 1920s, but ceased active solicitation between 1933 and 1939, reentering the market on a small scale in 1939. The company experienced a decline in dry goods sales, coinciding with a broader decline in the cotton industry. In 1933, the company began selling automotive parts, radios, and other appliances after acquiring the assets of two other companies, investing capital previously tied up in the dry goods business. These appliance sales became substantial during the base period years (1936-1939).

    Procedural History

    E.E. Elmore Wholesale Dry Goods, Inc. petitioned the Tax Court for relief from excess profits tax, claiming its average base period net income was an inadequate standard of normal earnings under Section 722. The Tax Court reviewed the case and denied the relief sought.

    Issue(s)

    1. Whether the drought in parts of Texas constituted an unusual and peculiar event that interrupted or diminished the taxpayer’s normal production, output, or operation, thereby entitling it to relief under Section 722(b)(1) of the Internal Revenue Code.
    2. Whether the taxpayer’s reentry into the Mexican market in 1939 constituted a change in the character of its business, justifying relief under Section 722(b)(4) of the Internal Revenue Code.
    3. Whether the decline in the cotton industry caused a depression in the taxpayer’s business, making its average base period net income an inadequate standard of normal earnings under Section 722(b)(2) of the Internal Revenue Code.

    Holding

    1. No, because the taxpayer failed to provide evidence that the drought caused an interruption or diminution of its business.
    2. No, because the reentry into the Mexican market was on too small a scale to constitute a significant change in the operation or capacity of the business.
    3. No, because the taxpayer’s overall business was not depressed during the base period, as increased appliance sales offset the decline in dry goods sales, resulting in an average net income that exceeded the long-term average.

    Court’s Reasoning

    The court found that the taxpayer failed to establish a causal relationship between the drought and any interruption or diminution of its business, as required by Section 722(b)(1). Regarding the Mexican market, the court determined that the limited reentry in 1939 did not constitute a substantial change in the business’s operation or capacity, distinguishing it from cases where enlargement of the trading area was extensive. As for the claim of business depression under Section 722(b)(2), the court noted that while dry goods sales declined, the taxpayer’s overall net profits during the base period exceeded the long-term average due to increased appliance sales. The court emphasized that the statute requires a depression in the *taxpayer’s business*, viewed as a whole, not just in a particular segment. The court stated, “During and prior to the base period the petitioner’s business consisted of wholesaling dry goods and appliances. In the determination of whether this business was depressed, we must look at the entire business and not merely one segment of it.” The court concluded that the taxpayer’s business as an entity was not depressed during the base period, precluding relief under Section 722(b)(2).

    Practical Implications

    This case clarifies the requirements for obtaining excess profits tax relief under Section 722 of the Internal Revenue Code. It underscores the need for taxpayers to provide concrete evidence demonstrating a direct causal link between specific qualifying events (like a drought or industry depression) and a provable depression or interruption of their business. It clarifies that a business must be viewed as a whole, and gains in one area can offset losses in another when determining if a business was truly “depressed” during the base period. The case highlights that re-entering a market after a period of inactivity does not automatically constitute a change in the character of the business unless it involves a substantial change in operations or capacity. It remains relevant for understanding the application of Section 722 and the burden of proof required for taxpayers seeking relief under similar provisions.

  • Industrial Yarn Corp. v. Commissioner, 16 T.C. 681 (1951): Establishing Eligibility for Excess Profits Tax Relief

    16 T.C. 681 (1951)

    To qualify for excess profits tax relief under Section 722 of the Internal Revenue Code, a taxpayer must demonstrate either that their business was depressed due to unusual temporary economic circumstances or that they underwent a significant change in the character of their business immediately before the base period, and that their average base period net income does not reflect normal earnings.

    Summary

    Industrial Yarn Corporation sought relief from excess profits tax for 1941 and 1942, arguing that its business was depressed due to a record cotton crop in 1937 and that it had changed its business character by emphasizing colored yarn sales. The Tax Court denied relief, holding that Industrial Yarn failed to prove its business was depressed or that it had undergone a substantial change in business character immediately before the base period. The court emphasized the lack of evidence supporting the company’s claims and the destruction of sales records that could have provided crucial data.

    Facts

    Industrial Yarn Corporation acted as a broker and commission seller of cotton yarn from 1922 to 1942. The company claimed entitlement to relief from excess profits taxes for 1941 and 1942 under Section 722(b)(2) and (b)(4) of the Internal Revenue Code, asserting its business was depressed due to a record cotton crop in 1937 and that it shifted its focus to colored yarn sales prior to the base period years. The company represented multiple mills, selling both grey (natural) and colored yarn. While it advertised colored yarn sales starting in 1932, sales records before 1936 were destroyed. The company argued that concentrating on colored yarn constituted a change in its business character. The IRS disallowed the claim.

    Procedural History

    Industrial Yarn Corporation petitioned the Tax Court for relief from excess profits tax for 1941 and 1942. An earlier motion to dismiss for lack of jurisdiction was denied by the Tax Court in a prior proceeding. The Tax Court then heard the case on its merits, considering the petitioner’s claims for relief under Section 722(b)(2) and (b)(4) of the Internal Revenue Code. The Commissioner of Internal Revenue had disallowed the company’s claims.

    Issue(s)

    1. Whether Industrial Yarn Corporation’s business was depressed during the base period years (1936-1939) due to temporary economic circumstances, specifically the 1937 record cotton crop, within the meaning of Section 722(b)(2) of the Internal Revenue Code?

    2. Whether Industrial Yarn Corporation changed the character of its business by emphasizing colored yarn sales immediately prior to the base period years, thereby qualifying for relief under Section 722(b)(4) of the Internal Revenue Code?

    Holding

    1. No, because Industrial Yarn Corporation failed to demonstrate that its business was unusually and temporarily depressed during the base period, especially considering its average earnings were actually higher during the base period than in prior years.

    2. No, because Industrial Yarn Corporation failed to prove that a significant change in the character of its business occurred and, even if it did, that it took place immediately before the base period years.

    Court’s Reasoning

    The court reasoned that Industrial Yarn Corporation did not provide sufficient evidence to prove its business was depressed during the base period years. The court noted that the company’s average earnings were higher in the base period than in the years 1922-1939. The court also stated that a fluctuating cotton crop is not an unusual business event, barring extraordinary circumstances which were not proven. Regarding the change in business character, the court found the company failed to prove a substantial change occurred and, even if it had, that it happened immediately before the base period. The destruction of sales records prior to 1936 hindered the company’s ability to demonstrate when the shift to colored yarn sales occurred. The court noted that the company had been selling colored yarn as early as 1927. The court concluded that the company’s income was more dependent on the effectiveness of its officers as yarn salesmen rather than fluctuations in market prices.

    Practical Implications

    This case clarifies the evidentiary burden required to obtain excess profits tax relief under Section 722 of the Internal Revenue Code. Taxpayers must provide concrete evidence demonstrating both a qualifying event (depression or change in business character) and a direct causal link to depressed earnings during the base period. The destruction of relevant records can be detrimental to a taxpayer’s case. Furthermore, the case underscores that normal business fluctuations do not automatically qualify a taxpayer for relief; the economic circumstances must be both unusual and temporary to the specific taxpayer’s business. This case highlights the importance of maintaining detailed records and demonstrating a clear nexus between the alleged qualifying event and its adverse impact on business earnings. Later cases cite this decision as an example of the evidentiary requirements for establishing eligibility for tax relief based on business depression or changes in business character.

  • Pabst Air Conditioning Corp. v. Commissioner, 14 T.C. 427 (1950): Establishing Eligibility for Excess Profits Tax Relief

    14 T.C. 427 (1950)

    A taxpayer seeking excess profits tax relief must demonstrate that its business was depressed due to conditions prevailing in its industry, leading to a profits cycle differing significantly from the general business cycle; mere membership in a depressed industry is insufficient.

    Summary

    Pabst Air Conditioning Corporation sought relief from excess profits tax under Section 722 of the Internal Revenue Code, arguing that its business was depressed during the base period (1936-1939) due to its membership in the cyclically depressed building and construction industry. The Tax Court denied relief, holding that Pabst failed to prove its business was depressed due to conditions in the construction industry or that its profit cycle differed materially from the general business cycle. The court also found that Pabst’s reconstructed income projections were speculative and lacked adequate evidentiary support, particularly given the prior business experience of its owner in a similar venture.

    Facts

    • Pabst Air Conditioning Corp. was incorporated in December 1937 and began operations in January 1938, engaging in air conditioning, heating, piping, and ventilating services in the New York City area.
    • Charles S. Pabst, the sole stockholder and president, had prior experience in the same field, having managed Adams Engineering Co. until 1937.
    • Pabst argued that the company deliberately underbid projects in 1938 and 1939 to gain market share and prestige, resulting in artificially low profits during the base period.
    • The corporation sought to demonstrate that the building and construction industry was generally depressed during the base period.

    Procedural History

    Pabst Air Conditioning Corp. contested the Commissioner of Internal Revenue’s determination of excess profits tax for the years 1942, 1943, and 1944. The Tax Court heard the case to determine if the corporation was entitled to relief under Section 722 of the Internal Revenue Code.

    Issue(s)

    1. Whether Pabst Air Conditioning Corp. demonstrated that its business was depressed during the base period due to conditions generally prevailing in the building and construction industry, entitling it to relief under Section 722(b)(3) of the Internal Revenue Code?
    2. Whether Pabst Air Conditioning Corp. proved that its average base period net income was an inadequate standard of normal earnings because it commenced business during or immediately prior to the base period, within the meaning of Section 722(b)(4) of the Internal Revenue Code?

    Holding

    1. No, because Pabst failed to prove its business was depressed due to conditions in the construction industry or that its profit cycle differed materially from the general business cycle.
    2. No, because Pabst’s reconstructed income projections were speculative and lacked adequate evidentiary support, considering the prior business experience of its owner.

    Court’s Reasoning

    The Tax Court reasoned that Pabst failed to establish a direct link between the alleged depression in the construction industry and its own business performance. The court emphasized that Section 722(b)(3) requires a showing that the taxpayer’s business was actually depressed by conditions in the industry, not merely that the taxpayer was a member of a depressed industry. The court found the evidence of general depression in the construction industry unconvincing and noted the absence of evidence demonstrating that Pabst’s air-conditioning business was necessarily affected by any such depression. Further, the court rejected Pabst’s reconstructed income projections, finding them speculative and based on post-base period data, which is inadmissible under Section 722(a). The court also noted that Pabst’s owner had prior experience in a similar business, which weighed against the claim that the company’s base period earnings were not representative of its normal operations. The Court stated, “That section does not confer the right solely because of membership in a depressed industry, but appears carefully drawn to limit relief to one whose business was actually depressed by reason of general conditions in the industry.”

    Practical Implications

    This case highlights the stringent evidentiary requirements for obtaining excess profits tax relief under Section 722 of the Internal Revenue Code. It demonstrates that taxpayers must provide concrete evidence linking industry-wide economic conditions to their specific business performance. General claims of economic hardship are insufficient. Taxpayers must also substantiate any reconstructed income projections with reliable data and avoid relying on speculative assumptions or post-base period information. The case also shows that prior business experience of a company’s principals can be considered when determining whether base period earnings accurately reflect normal operations. It informs tax attorneys on the level of proof required for these types of claims.