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and had to expend to avoid the accumulated earnings tax of
section 531. Respondent asserts that Beiner performed minimal,
nonspecialized services for petitioner during each subject year
and that those services did not entitle petitioner to deduct the
disputed payments as compensation. Petitioner argues in its
brief that the disallowed compensation was reasonably paid to
Beiner for his services. Petitioner asserts that Beiner was
skilled in and deeply involved with petitioner’s business and
that his services resulted in petitioner’s realizing a superior
return on equity in each subject year. Petitioner asserts that
these rates of return would have caused a hypothetical inactive
independent investor to pay Beiner the same amount of
compensation that petitioner paid him during those years.
In support of their arguments, both parties rely upon the
opinion of the Court of Appeals for the Ninth Circuit in
Elliotts, Inc. v. Commissioner, supra at 1245-1248. Because this
case is most likely appealable to that court, see sec.
7482(b)(1)(B), we do the same, see Golsen v. Commissioner,
54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971).
Pursuant to that opinion, we generally determine the
deductibility of the compensation paid to Beiner by focusing on
its reasonableness, and we decide that reasonableness by
considering five factors from the perspective of a hypothetical
inactive independent investor. Elliotts, Inc. v. Commissioner,
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