- 14 - 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,Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
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