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opportunities for greater revenues. Under these facts and
circumstances, we do not assume that a consolidation phase is a
per se adverse economic condition for a business.
Thus, petitioner's evidence does not support a finding that
the home health care business suffered from adverse economic
conditions, or that the home health care business was
significantly more competitive in 1990 than it was in 1989. This
factor points to the conclusion that the compensation paid Rogers
in 1990 was in part unreasonable.
6. Comparison of Salaries Paid With Distributions of
Retained Earnings
The failure to pay more than minimal dividends may suggest
that reported compensation actually is (in whole or in part) a
dividend. Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d at
1322-1323; Charles Schneider & Co. v. Commissioner, 500 F.2d at
151. Corporations, however, are not required to pay dividends.
Shareholders may be equally content with the appreciation of
their stock caused, for example, by the retention of earnings.
Owensby & Kritikos, Inc. v. Commissioner, supra; Home Interiors &
Gifts, Inc. v. Commissioner, 73 T.C. at 1162.
In reviewing the reasonableness of an employee's
compensation, we often apply a hypothetical independent investor
standard to determine whether a shareholder has received a fair
return on investment after payment of the compensation in
question. Owensby & Kritikos, Inc. v. Commissioner, supra at
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