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is nothing in this record to show directly the percent of sales
of the cotton/Lycra fabric that Mr. Penalba would have received
in an arm's-length transaction because he was the developer of
the fabric. However, some of petitioner's salesmen were paid a
commission of 4 percent for their selling activities. Based on
this fact, we conclude that in an arm's-length transaction
petitioner would have paid Mr. Penalba approximately 4 percent of
the sales of cotton/Lycra fabric in its fiscal year 1990, and
hold that this amount would be $400,000. We, therefore, hold
that total reasonable compensation to Mr. Penalba by petitioner
in its fiscal year 1990 is $1,071,200.
The record shows that Mrs. Penalba worked 60 to 80 hours a
week, but does not show any other extraordinary contribution she
made to petitioner. In fact, from her testimony it appears that
she was not knowledgeable with respect to some of petitioner's
activities about which a chief financial officer would be
expected to be knowledgeable. There is nothing in this record to
indicate that reasonable compensation for Mrs. Penalba would be
in excess of the amount determined by respondent, except the
testimony of respondent's expert witness that reasonable
compensation for Mrs. Penalba was $209,520 for petitioner's
fiscal year 1990. For reasons heretofore stated, we do not
accept the opinion of respondent's expert because of its being
based on noncomparable data. However, we shall accept the
$209,520 as reasonable compensation for Mrs. Penalba's services
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