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compensation greatly exceeded the compensation paid by Menards’s
chief competitors to their CEOs.
As respondent points out in his response to petitioners’
motion, petitioners make no attempt to explain why evidence of
Mr. Menard’s compensation for taxable years ended before 1991 has
any relevance to our analysis under the independent investor test
established in Exacto Spring Corp. The independent investor test
focuses on the rate of return on equity for the year the
compensation is paid. The presumption of reasonableness created
by a qualifying rate of return is rebutted either by evidence
that something other than the CEO’s services generated or
contributed to that year’s rate of return or by evidence that the
marketplace considered the CEO’s compensation for that year to be
unreasonable. Petitioners have failed to explain how evidence of
Mr. Menard’s compensation in taxable years ended before 1991 is
relevant to any aspect of the independent investor test.
Petitioners also failed to present any argument regarding why
this evidence is relevant to the “purely for services” prong of
the section 162 test for deducting compensation.
The burden of demonstrating an exhibit’s relevance is on the
party seeking its admission. Dowling v. United States, 493 U.S.
342 (1990). Moreover, a court has broad discretion to determine
the admissibility of evidence based on remoteness in time. Keyes
v. School Dist. No. 1, 521 F.2d 465, 473 (10th Cir. 1975). The
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