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not believe an independent investor would be happy with
petitioner’s financial performance for its 1996 fiscal year,
especially where the total officer compensation paid to Mr. and
Mrs. Myers for that year was almost three times the investor’s
year-end equity in the company ($1,113,800, divided by
$378,542).29
This factor favors respondent.
28(...continued)
the $183,000 bonus payment is reallocated to petitioner’s 1995
fiscal year, petitioner, would have a revised net loss after
taxes for that year of $123,708, a revised yearend equity of
$368,307, and a revised return on equity ranging from a negative
26.00 percent to a negative 33.59 percent (under the three
approaches used supra). We think petitioner’s resulting negative
return on equity for fiscal year 1995 would be equally
unsatisfactory to an independent investor.
29Under an independent-investor-return-on-equity-analysis
the corporation’s greatly increased market value can also be
probative of the value of a shareholder-officer’s services.
Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d 1315, 1326
(5th Cir. 1987), affg. T.C. Memo. 1985-267 (noting that an
investor may garner a return on investment through stock
appreciation); Elliotts, Inc. v. Commissioner, 716 F.2d 1241,
1247 n.6 (9th Cir. 1983), revg. and remanding T.C. Memo. 1980-
282. However, petitioner offered no evidence or argument
regarding appreciation in the market value of its stock.
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