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test. Under the independent investor test as adopted by the
Court of Appeals for the Seventh Circuit, if a hypothetical
independent investor would consider the rate of return on his
investment in the taxpayer corporation “a far higher return than
* * * [he] had any reason to expect”, the compensation paid to
the corporation’s CEO is presumptively reasonable. Id. at 839.
This presumption of reasonableness may be rebutted, however, if
an extraordinary event was responsible for the company’s
profitability or if the executive’s position was merely titular
and his job was actually performed by someone else. Id. On
brief, respondent conceded that Mr. Menard’s compensation
satisfied the independent investor test.
Although we agree with respondent that Mr. Menard’s
compensation satisfies the independent investor test as
articulated in Exacto Spring Corp., our inquiry into whether the
compensation was reasonable in amount does not end there.34 In
34Respondent conceded in his posttrial brief that the rate
of return generated by Menards for the TYE 1998 was sufficient to
satisfy the independent investor test and did not argue that the
presumption created thereby was rebutted by evidence that the
compensation paid to Mr. Menard was substantially and
unreasonably higher than the compensation paid to CEOs in
comparable companies. Respondent chose instead to argue only
that the disallowed portion of Mr. Menard’s compensation was a
disguised dividend. It is within our discretion to accept or
reject a concession. Fazi v. Commissioner, 105 T.C. 436, 444
(1995) (citing Jones v. Commissioner, 79 T.C. 668, 673 (1982),
and McGowan v. Commissioner, 67 T.C. 599, 601, 605 (1976)). “We
may accept a concession or choose to decide the underlying
substantive issues as justice requires.” Id. Because we believe
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