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the testimony of petitioner's officers. Their testimony was
credible on this point. We conclude that none of the
compensation in the year at issue was paid for services performed
in prior years. This factor tends to show that the compensation
was unreasonable.
j. Whether the Employee and Employer Dealt at Arm's
Length
We closely scrutinize compensation if the employee controls
the employer to see whether it is unreasonable in amount or
payment for something other than the employee's services.
Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d 1315, 1322-
1324 (5th Cir. 1987), affg. T.C. Memo. 1985-267; Elliotts, Inc.
v. Commissioner, supra at 1246; Charles Schneider & Co. v.
Commissioner, 500 F.2d 148, 152-154 (8th Cir. 1974), affg. T.C.
Memo. 1973-130.
Chasin, Hanson, and Searing owned 100 percent of
petitioner's stock. That leads us to consider whether an
independent investor would have approved the compensation in view
of the nature and quality of the services performed and the
effect of those services on the investor's return on his or her
investment. Owensby & Kritikos, Inc. v. Commissioner, supra at
1326-1327; Elliotts, Inc. v. Commissioner, supra at 1246-1247.
An independent investor would have received a 33-percent return
on equity. We believe that an independent investor would approve
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