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in size to petitioner’s (that is, between $2 and $5 million).
Petitioner contends that Hakala failed to consider that
petitioner and the services of Isidore Klein and Steven Klein are
unique. Although all companies and corporate officers are in one
sense unique, we believe that survey data cited by Hakala (as
well as Dorf) is helpful in deciding the amount of Isidore and
Steven Klein’s reasonable compensation.
Hakala concluded that, from the standpoint of a hypothetical
independent investor, the compensation petitioner paid to Isidore
and Steven Klein in 1993 and 1994, and to Steven Klein in 1995,
was unreasonable. Hakala pointed out that, although petitioner
was very profitable before paying officers’ compensation, its
performance after paying officers’ compensation was well below
what would satisfy an independent investor. Hakala estimated the
maximum amount petitioner could pay Isidore and Steven Klein
while paying a reasonable return to an independent investor and
concluded that the compensation paid to Isidore and Steven Klein
was about twice the maximum reasonable compensation.
Petitioner criticizes Hakala for not separately valuing the
services of Steven and Isidore Klein. We agree that having a
separate opinion for their reasonable compensation would have
been more helpful, but despite that we still find Hakala’s
analysis to be helpful.
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