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the Valentes’ efforts. Starting with respondent’s $76,800
determination as a base amount attributable to the Valentes’
collection of petitioner’s established income, we have
approximated an additional amount of compensation attributable to
the increase in income generated by the Valentes during 1995 and
1996. We conclude and hold that reasonable compensation for the
Valentes’ services for 1995 and 1996 is $89,750 and $162,650,
respectively. We calculated those amounts by dividing the
increased amount of income earned by the Valentes’ efforts
between the officer/employee and equity holder, which when added
to respondent’s $76,800 determination resulted in an annual
reasonable compensation of $89,750 and $162,650 for 1995 and
1996, respectively.7
Petitioner argues that the independent investor test should
be the sole method of deciding whether the officer compensation
claimed by petitioner was reasonable. Respondent counters that
the independent investor test should be only one of the factors
considered, citing the Court of Appeals for the Ninth Circuit
opinion in Elliotts, Inc. v. Commissioner, 716 F.2d 1241 (9th
Cir. 1983). In addition, respondent contends that the facts of
7 The amount of compensation in excess of the $76,800, the
amount determined by respondent, was calculated by dividing in
half the 1995 and 1996 increases in income over the average of
the 3 prior years, $25,922 and $171,719 and arriving at bonuses
of $12,950 and $85,850.
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