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II. The Elliott Factors Applied to Petitioner’s Compensation of
Mr. Reeves
A. Role in the Company
This factor focuses on the employee’s importance to the
success of the business. Pertinent considerations include the
employee’s position, hours worked, and duties performed.
Elliotts, Inc. v. Commissioner, supra at 1245.
Mr. Reeves served as petitioner’s president, secretary, and
treasurer and handled all petitioner’s managerial duties.
However, the record does not establish the specific amount of
time Mr. Reeves spent operating petitioner after it was
incorporated. Instead, the record indicates that Mr. Reeves
spent a considerable amount of his time operating petitioner’s
sister corporation, VVI.
B. External Comparison
This factor compares the employee’s compensation with that
paid by similar companies for similar services. Elliotts, Inc.
v. Commissioner, supra at 1246; see sec. 1.162-7(b)(3), Income
Tax Regs.
Petitioner failed to provide any data comparing the
compensation paid to Mr. Reeves with that paid by similar
companies providing similar services. Only respondent offered
expert testimony. However, respondent’s expert, Scott D. Hakala,
provided a reasonable compensation analysis focusing only on
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