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whether the Valentes’ efforts were designed to generate income
and/or to protect Mr. Valente’s capital investment.
B. An External Comparison of the Employee’s Salary With
Salaries Paid by Similar Companies for Similar Services
On this point, respondent contends that Mrs. Valente would
not be entitled to earn the amount petitioner paid her during
1995 and 1996. Conversely, petitioner argues that the
compensation paid to Mr. and/or Mrs. Valente was for their joint
effort. Admittedly, Mrs. Valente acted in the nature of an
amanuensis for Mr. Valente; however, petitioner has shown that
its payments were to the Valentes for their joint efforts. Our
focus here is not on the question of who should report the income
but on the amount deductible as reasonable compensation for the
efforts of the operative officers of petitioner. See, e.g.,
Lewisville Inv. Co. v. Commissioner, 56 T.C. 770 (1971).
Accordingly, we must evaluate whether the Valentes, acting
together as petitioner’s operative officers, earned the amount of
compensation paid by petitioner. Neither party introduced
evidence about compensation paid by similar companies for similar
services.
C. The Character and Condition of the Company
Respondent characterizes petitioner as a small business with
activities that are not complex. As noted, petitioner’s income
during the years in issue was from passive sources (rents,
interest, and dividends), and respondent emphasizes that those
sources did not require much effort by the Valentes. Respondent,
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