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This factor favors respondent.
5. Comparison With Other Companies: Salaries Paid to
Comparable Employees in Similar Companies
In deciding whether compensation is reasonable, we compare
it to compensation paid to persons holding comparable positions
in comparable companies. See Rapco, Inc. v. Commissioner, 85
F.3d at 954; Rutter v. Commissioner, 853 F.2d 1267, 1271 (5th
Cir. 1988), affg. T.C. Memo. 1986-407; Mayson Manufacturing Co.
v. Commissioner, supra at 119.
Respondent’s expert, Hakala, and petitioner’s expert, Dorf,
submitted reports in which they analyzed compensation paid to
persons holding comparable positions in other companies. Each of
their reports provides some basis for us to apply this factor;
however, we give less weight to Dorf’s opinion because we believe
his analysis contains major flaws.
a. Dorf
Dorf concluded that the compensation petitioner paid to
Isidore Klein in 1993 ($352,000) and 1994 ($368,000) and Steven
Klein in 1993 ($500,400), 1994 ($450,400), and 1995 ($820,400)
“could be deemed reasonable”. We believe he overstated the
amount of compensation that “could be deemed reasonable” because
he: (1) Did not consider petitioner’s financial performance from
the standpoint of an independent investor, (2) incorrectly
assumed that Isidore Klein had been undercompensated in prior
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