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Accordingly, in determining whether the amounts petitioner
paid to Mr. and Mrs. Myers and deducted on its income tax returns
were reasonable compensation, we first analyze and apply the nine
factors used by the Court of Appeals for the Tenth Circuit in
Pepsi-Cola Bottling Co. of Salina, Inc. v. Commissioner, supra.
We then evaluate petitioner’s financial performance using certain
elements of the independent investor test.
A. Mr. Myers’ and Mrs. Myers’ Qualifications
An employee’s superior qualifications for his or her
position may justify high compensation. Home Interiors & Gifts,
Inc. v. Commissioner, supra at 1158.
Mr. Myers had substantial knowledge and experience in doing
concrete work in the construction industry. Before petitioner’s
incorporation in late 1986, Mr. Myers already had extensive
experience in pouring concrete foundations and flat work, and in
managing and operating his own foundation and flat work
contracting business.
Mrs. Myers had almost no experience in the construction
industry before she began to work for petitioner. She had some
13(...continued)
Indeed, in reviewing and affirming our decision in Eberl’s Claim
Serv., Inc., the Court of Appeals observed that this Court, in
concluding that the taxpayer in that case had not carried its
burden of showing the entire amount of compensation deducted was
reasonable, had identified and examined 12 relevant factors,
including, where the employee and employer have failed to deal at
arm’s length, whether an independent investor would have approved
the compensation. Id.
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