- 47 -
Commissioner, supra.
This factor favors respondent.
J. Independent Investor Test and Petitioner’s Financial
Performance
As indicated previously, the Courts of Appeals for the
Second, Seventh, and Ninth Circuits have applied an independent
investor test in determining whether payments to an employee-
shareholder are deductible by a taxpayer-corporation as
reasonable compensation under section 162.
In applying their respective versions of the independent
investor test, the Courts of Appeals for the Second and Ninth
Circuits have considered many of the same or similar factors in
determining reasonable compensation as examined above, and they
have used the same totality of the circumstances approach adopted
by the Court of Appeals for the Tenth Circuit in Pepsi-Cola
Bottling Co. of Salina, Inc. v. Commissioner, 528 F.2d at 179.
Dexsil Corp. v. Commissioner, 147 F.3d 96, 100-101 (2d Cir. 1998)
(noting that the independent investor test applied is not a
separate autonomous factor; rather, it provides a lens through
which the entire analysis should be viewed), vacating and
remanding T.C. Memo. 1995-135; Rapco, Inc. v. Commissioner, 85
F.3d 950, 954-955 (2d Cir. 1996) (applying a multifactor test
from perspective of an independent investor), affg. T.C. Memo.
1995-128; Elliotts, Inc. v. Commissioner, 716 F.2d at 1245
(same).
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