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Petitioner argues that, during the audit years, Mrs.
Harrison provided significant services to petitioner consisting
principally of (1) her services as a member of petitioner’s board
of directors, (2) her public relations activities, i.e., her
activities as petitioner’s primary representative at numerous
charitable and civic events in the communities served by
petitioner, and (3) her personal guaranty of the line of credit
to petitioner from Bank of America. Petitioner also argues that
its return on equity during the audit years would have satisfied
an independent investor in petitioner. On that basis, petitioner
argues that it is entitled to deduct the entire amount paid to
Mrs. Harrison during the audit years as reasonable compensation
for services rendered.
C. Analysis
1. Applicable Caselaw
Because petitioner’s principal place of business is in
California, it is likely that any appeal of this case would be to
the Court of Appeals for the Ninth Circuit. See sec.
7482(b)(1)(B). Therefore, we must apply that court’s
jurisprudence governing issues of reasonable compensation in
accordance with the doctrine of Golsen v. Commissioner, 54 T.C.
742 (1970), affd. 445 F.2d 985 (10th Cir. 1971).
2(...continued)
forth in Nor-Cal Adjusters v. Commissioner, 503 F.2d 359, 361-362
(9th Cir. 1974), affg. T.C. Memo. 1971-200.
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