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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.2d
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