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amount Hakala would say would be reasonable compensation. We
find it difficult to justify an analysis that leads to such a
counterintuitive result.
Under these circumstances, we conclude that (1) Hakala’s
application of CAPM on the record herein presents too many
difficulties to justify using CAPM in the calculation of
reasonable compensation for Jack, and (2) neither Hakala nor
Sledge has explained CAPM sufficiently for us to be able to
determine what would be the bottom-line effect of even correcting
the arithmetic errors we have described, except that we perceive
it is more likely than not that those corrections would produce
reasonable compensation numbers somewhat greater than those that
Hakala recommended.
However, it appears from respondent’s reactions on brief
that respondent is willing to accept Hakala’s recommendations
even when the amounts exceed what had been determined in the
notice of deficiency. Accordingly, we conclude: (1) Based on
the foregoing analysis of Hakala’s independent investor approach
and the correction of Hakala’s arithmetic errors (plus the
allowance for Jack’s loan guaranty), 1995 reasonable compensation
for Jack’s services is $610,000; and (2) based on the foregoing
analysis of the RMA data (plus an amount for nonsalary benefits),
1996 reasonable compensation for Jack’s services is $630,000.
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