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an external comparison of the employee’s salary with salaries
paid by similar companies for similar services; (3) the character
and condition of the company; (4) the conflict of interest
between the company and the employee; and (5) the internal
consistency in the company’s treatment of payments to employees.
See, e.g., Elliotts, Inc. v. Commissioner, 716 F.2d 1241, 1245-
1248 (9th Cir. 1983), revg. T.C. Memo. 1980-282.
Petitioner, in a similar fashion, points out that there are
five traditional factors that the courts have used to decide
whether compensation is reasonable, to wit: (1) The type of
services and their extent; (2) the scarcity of qualified
employees; (3) qualifications and prior earning capacity; (4) the
net earnings of the corporate taxpayer; and (5) the peculiar
characteristics of the taxpayer’s business. Petitioner’s
suggested traditional factors are, in essence, the same ones the
Court of Appeals for the Ninth Circuit has utilized.
Each party reviews the facts of these cases under the
traditional factors and concludes that their position is fully
supported--i.e., respondent contends that his determination is
correct, and petitioner contends that its compensation claims are
reasonable. Petitioner, however, contends that the traditional
tests are not adequate in the circumstances of these cases.
Petitioner urges us to use exclusively the “independent investor
test” in the same manner as used by the Court of Appeals for the
Seventh Circuit in Exacto Spring Corp. v. Commissioner, 196 F.3d
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