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833, 835 (7th Cir. 1999), revg. Heitz v. Commissioner, T.C. Memo.
1998-220.
We begin our reasonable compensation analysis by evaluating
the facts of these cases in the context of the traditional
factors, in the format used by the Court of Appeals for the Ninth
Circuit.
A. The Employee’s Role in the Company
We consider the Valentes as a single unit in the setting of
this case because Mr. Valente was ill, and, although he was able
to make decisions, it was Mrs. Valente who executed his
decisions. Although a large portion of the compensation was paid
to Mrs. Valente, the total compensation was based on the
Valentes’ joint efforts or performance, and we refer to that
performance collectively and in the singular. The Valentes
(initially Mr. Valente and then Mrs. Valente) were taken ill and
became unable to fully function in petitioner’s business.
Petitioner’s sources of income are of a passive or investment
nature, in that income was generally received from established
capital investment rather than from personal services. Prior to
the years under consideration, Mr. Valente sold his active
operating interests in automobile dealerships and a leasing
operation. Thereafter, operating out of the Valentes’ home,
petitioner’s sources of income were mainly from investment type
activity--collection of rent and interest and the purchase and
sale of securities and realty. Except for the ownership of a
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