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Pepsi-Cola Bottling Co. of Salina, Inc., supra, and apply the
multifactor approach. See Golsen v. Commissioner, 54 T.C. 742,
757 (1970), affd. 445 F.2d 985 (10th Cir. 1971).
Petitioner argues, among other things, that its compensation
payments to Mr. Myers and Mrs. Myers for the 1996 fiscal year
were reasonable because their efforts enabled it to enjoy
outstanding financial performance from January 1, 1987, through
July 31, 1996. Petitioner claims, in light of its alleged
outstanding financial performance, that an independent investor
would have approved the compensation paid to Mr. Myers and Mrs.
Myers. Not surprisingly, respondent disputes petitioner’s
claims. In applying the multifactor approach of the Court of
Appeals for the Tenth Circuit, whether petitioner’s owners
enjoyed a high rate of return on their equity investment is a
relevant factor. The return on equity analysis (which, as
discussed infra pp. 48-50, is central to the independent investor
test) can be especially useful in evaluating the taxpayer’s
financial performance, an additional factor this Court addressed
in Eberl’s Claim Serv., Inc., supra.13
13In Eberl’s Claim Serv., Inc. v. Commissioner, 249 F.3d
994, 999 (10th Cir. 2001), affg. T.C. Memo. 1999-211, the Court
of Appeals noted that under the traditional multifactor approach
in Pepsi-Cola Bottling Co. of Salina, Inc. v. Commissioner, 528
F.2d 176 (10th Cir. 1975), affg. 61 T.C. 564 (1974), the
situation must be considered as a whole, with no one factor being
decisive. It further noted that while the factors to be
considered have been stated innumerable times in past cases,
those factors have never been reduced to a definitive list. Id.
(continued...)
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