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related to petitioner’s realization of those excess gross
profits, we agree with Wertlieb that petitioner is entitled to
pay those profits to Beiner as compensation for his work. See
Elliotts, Inc. v. Commissioner, supra at 1248.
We conclude that a hypothetical inactive independent
investor would consider this factor favorably to require the
payment of up to $906,740 and $1,533,093 in compensation to
Beiner in the respective years in order to retain his services
during each of those years.
3. Character and Condition of the Company
This factor concerns petitioner’s character and condition.
The focus of this factor may be on petitioner’s size as indicated
by its sales, net income, or capital value. The complexities of
petitioner’s business and the general economic conditions are
also relevant. Id. at 1246.
Petitioner was established in 1991 with a $7,000 capital
contribution. In each year after its first short taxable year,
petitioner was an extremely well-managed, profitable company in
that it experienced extraordinary growth in sales and shareholder
equity. During the respective subject years, its sales totaled
$3,473,802 and $3,485,568, and its gross profit totaled
$1,713,718 and $2,420,592. At the end of the respective years,
its shareholder equity totaled $372,513 and $754,837. During the
subject years, its customers were located throughout the United
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