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and “essential to Exacto’s success”), specifically acknowledges
that the independent investor test would not be appropriate in a
case in which ROE, “though very high, is not due to the * * *
[employee’s] exertions”, or in a case in which the purported
salary payment “really did include a concealed dividend”. Id.;
accord Haffner’s Serv. Stations, Inc. v. Commissioner, 326 F.3d
1, 5 (1st Cir. 2003) (“Even if the company performed well in the
subject period and even if executives at comparable companies got
large packages * * * a neutral owner would not pay * * *
[employee-shareholders] handsomely for producing results for
which others * * * were responsible”), affg. T.C. Memo. 2002-38.
To the same effect, in Dexsil Corp. v. Commissioner, T.C. Memo.
1999-155, the Court stated:
We do not believe that the hypothetical investor would
have looked solely at rate of return and ignored the
availability of other executives at less compensation
than that paid Lynn; we do not believe that Lynn was
the sole reason for Dexsil’s success to the extent that
other officer-shareholders were in the cases relied on
by petitioner * * *.
Similarly, in Elliotts, Inc. v. Commissioner, supra at 1247
n.6, the Court of Appeals for the Ninth Circuit states that an
ROE satisfactory to an independent investor is “probative [not
conclusive] of * * * [the employee-shareholder’s] management
contributions to * * * [the employer].”
Because petitioner’s overall profit for the audit years was
primarily attributable to the efforts of Myron, James, and Ralph,
not to those of Mrs. Harrison, see supra section II.C.4.a., and
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