- 20 - 95 T.C. 525, 553 (1990), affd. 965 F.2d 1038 (11th Cir. 1992); Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. 1142, 1155 (1980). In addition to multifactor tests (see Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d at 1323), courts have also used independent investor tests to determine whether payments to an employee-shareholder exceeded reasonable compensation. See, e.g., Dexsil Corp. v. Commissioner, 147 F.3d 96, 100-101 (2d Cir. 1998), vacating and remanding T.C. Memo. 1995-135, on remand T.C. Memo. 1999-155. Generally, courts have described independent investor tests as a lens through which the entire analysis should be viewed. Dexsil Corp. v. Commissioner, id. at 101. In Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d at 1327, the Court of Appeals for the Fifth Circuit stated: “The so-called independent investor test is simply one of the factors a court should consider, and in certain cases it may be a substantial factor.” In discussing the significance of a corporation’s dividend practices, that Court also stated: “The prime indicator of the return a corporation is earning for its investors is its return on equity.” Id. at 1326-1327. Discerning the intent behind the payments also presents a factual question to be resolved within the bounds of the individual case. Nor-Cal Adjusters v. Commissioner, 503 F.2dPage: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next
Last modified: May 25, 2011