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however, acknowledges that the increases to petitioner’s 1995 and
1996 income were attributable to gain on the sale of real
property and stocks. Those increases, compared to the average of
the prior 3 years, amounted to $25,922 and $171,719 for 1995 and
1996, respectively.4 Considered as a percentage increase over
the 3 years prior to 1995, the increases were 4 percent and 27
percent, respectively.
Petitioner contends that its assets were “interwoven with
the retail automobile business” and that it was Mr. Valente’s
knowledge, expertise, and involvement that made petitioner
financially successful. Petitioner acknowledges that the
Valentes did not devote their full time to petitioner but argues
that petitioner’s success was nevertheless dependent upon the
Valentes.
D. The Conflict of Interest Between the Company and the
Employee
The question posed here is whether the Valentes used their
control of petitioner to pay deductible salary, as opposed to
nondeductible dividends. As contended by respondent,
substantially all of petitioner’s income was paid out in the form
of compensation to the Valentes. In that regard, respondent
references Elliotts, Inc. v. Commissioner, 716 F.2d at 1243, for
the proposition that there is a
4 For computation of these increases see infra note 6.
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