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shareholder, or where the existence of a family relationship
indicates that the terms of the compensation arrangement may not
have been the result of a free bargain. Elliotts, Inc. v.
Commissioner, supra at 1246-1247.
The record clearly discloses a family relationship.
Alondra's sole shareholder was Mr. Munro's daughter Ms. Ross.
The sole shareholder of UCII (the sole owner of UCIC) and of Edco
was Mr. Munro himself. Thus, Mr. Munro was the sole owner of two
out of the three equal partners of Pertinax, and the third
partner was wholly owned by his daughter. Petitioners themselves
argue strenuously, in support of their claim that Mr. Munro did
important work deserving generous compensation, that he
effectively controlled all the entities. There is nothing in the
record besides Mr. Malis' less than credible testimony to
indicate that anything like arm's-length negotiations took place.
The cases at hand bear a striking resemblance to Pepsi-Cola
Bottling Co. v. Commissioner, 61 T.C. at 568-569. In that case,
the contingent compensation agreement under review had been
struck years before. During its earlier years, the arrangement
resulted in far less compensation to the executive in question
than he later received. Moreover, he long had been the sole
executive officer of the corporation that paid the compensation.
We concluded that the contingent compensation agreement was not
the result of a free bargain, so that it did not have to be
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