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Valente had been well compensated in prior years, reflecting that
he had already been compensated for petitioner’s financial
success prior to 1995. Significantly, the Valentes were
physically less able to devote their time and efforts to
petitioner’s business during 1995 and 1996, yet petitioner seeks
to justify substantial increases in the Valentes’ compensation
over the average of the prior 3 years. The increases over the
$209,462 average for the 4 prior years was approximately $30,000
in 1995 and $250,000 for 1996. Although, as discussed infra,
there appears to be some justification for compensation in excess
of the amount determined by respondent, the amounts sought by
petitioner are unreasonable and unjustified on this record. The
profit from the acquisition and sale of realty and securities, on
the other hand, was more directly attributable to the Valentes’
efforts.
The compensation paid to the Valentes represented 81.6
percent and 88.7 percent, respectively, of petitioner’s 1995 and
1996 adjusted5 taxable income. That would leave an independent
investor with less than 20 percent and 10 percent of petitioner’s
income for 1995 and 1996, respectively. An independent investor
might or might not be willing to accept a division of “operating”
profits that is not based on the extent to which the efforts,
5 The income was adjusted so as not to include net operating
loss deductions from other years, special deductions, and the
deductions for officers’ salaries.
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