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absent evidence that the company’s financial condition improved
sufficiently to warrant the increases), affg. in part and
vacating in part on other grounds T.C. Memo. 1982-98. The
instant case is distinguishable from Exacto Spring Corp. v.
Commissioner, 196 F.3d 833 (7th Cir. 1999) (compensation of $1.3
and $1.0 million paid to taxpayer’s chief executive and principal
owner was reasonable; corporation had substantial earnings,
sales, and shareholder equity, and CEO’s salary was approved by
corporation’s two other unrelated, 20-percent shareholders),
revg. Heitz v. Commissioner, T.C. Memo. 1998-220; Alpha Med.,
Inc. v. Commissioner, 172 F.3d 942 (6th Cir. 1999) (Court held
that compensation of $4,439,180 paid to the president and sole
shareholder of a medical management corporation was reasonable
because the taxpayer was financially successful), revg. T.C.
Memo. 1997-464; Mayson Manufacturing Co. v. Commissioner, 178
F.2d at 120 (larger compensation paid in a particularly
successful year was reasonable).
The prime indicator of the return a corporation is earning
for its investors is its return on equity. See Owensby &
Kritikos, Inc. v. Commissioner, supra at 1324. Petitioner
contends that it had an annual return on equity of 23.38 percent
and that this return on equity would satisfy an independent
investor. Petitioner contends that its return on equity should
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