- 40 -
The record does not contain enough information for us to
conclude that a reasonable person would have invested in
petitioner, given the payments of the large amounts of
compensation to Emile and Louise. Nor does the record allow us
to determine with any meaningful precision the rate of return
that a hypothetical investor would have received during the
subject years on his or her investment in petitioner.15 As to
both Emile and Louise, we are unable to answer the question
affirmatively.
g. Prevailing Rates of Compensation for Comparable
Positions in Comparable Companies
The record does not disclose the prevailing rates of
compensation for comparable positions in comparable companies.
As to both Emile and Louise, we are unable to answer the question
affirmatively.
15 Even if we could make a fair approximation of the rate of
return that a hypothetical investor would have received during
the subject years on his or her investment in petitioner, the
record contains no evidence as to what an investor would expect
as a rate of return in light of the risks of the business.
Moreover, even if the return on capital actually achieved by
petitioner were high enough to satisfy an independent investor,
this would not carry the day, in the absence of proof, which is
lacking here, that the profits are attributable to the efforts of
Emile and Louise. Cf. B & D Foundations, Inc. v. Commissioner,
T.C. Memo. 2001-262 (citing Exacto Spring Corp. v. Commissioner,
196 F.3d 833, 839 (7th Cir. 1999), revg. Heitz v. Commissioner,
T.C. Memo. 1998-220).
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