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greater than the separate or collective compensation that it paid
to its employees who worked under Beiner is explained by noting
that petitioner’s profits were derived almost exclusively through
the all-encompassing, far-reaching efforts of Beiner and that
petitioner’s other employees had limited roles in that
profitability.
We conclude that a hypothetical inactive independent
investor would consider this factor favorably to require the
payment of the disputed compensation to Beiner in order to retain
his services during each of the subject years.
6. Compensatory Intent
In addition to our decision on the five factors just
discussed, respondent invites the Court to decide petitioner’s
intent in making the disputed payments to Beiner. Specifically,
respondent argues, the compensation paid to Beiner was not paid
with the requisite compensatory intent but represented the
earnings that petitioner did not need to retain in its operation
and had to expend to avoid the accumulated earnings tax of
section 531. Respondent supports this argument by asserting that
petitioner has never paid a dividend, that petitioner paid Beiner
compensation in 1999 and 2000 equal to 88.3 and 69.9 percent of
those respective years’ net income, and that Beiner’s
compensation increased during those years from $970,000 to
$1,350,000 although, respondent states, Beiner reduced his hours
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