-24-
at 182-183; Perlmutter v. Commissioner, 373 F.2d 45, 48 (10th
Cir. 1967), affg. 44 T.C. 382 (1965).
Petitioner contends that it had no need to retain earnings
and that it was reasonable for it not to do so. We are not
convinced that petitioner had no need to retain earnings to help
it survive if Eberl retired or became disabled or if there was
less work for independent catastrophe claims adjusters. See
Pulsar Components Intl., Inc. v. Commissioner, T.C. Memo. 1996-
129 (Court found that corporation paid reasonable compensation to
two of its officer/shareholders because an independent investor
would have been satisfied with corporation's payment of $65,000
of dividends and additional retention of earnings as cushion for
possible less profitable periods).
The prime indicator of the return a corporation is earning
for its investors is its return on equity. Owensby & Kritikos,
Inc. v. Commissioner, supra at 1324.
Petitioner contends that petitioner's return on equity
should be based on Eberl's $500 investment, that petitioner had a
return on equity for fiscal year 1992 of 3,350 percent and 1,363
percent for fiscal year 1993, and that this return on equity
would satisfy an independent investor. Petitioner also contends
that it did not need to pay dividends because a hypothetical
shareholder would be satisfied with the appreciation in value of
his or her stock due to petitioner's retention of earnings and
the growth in petitioner's annual sales.
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