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petitioner’s financial documents, both experts concluded that
petitioner’s annual sales were fairly constant during the 1990s.
Petitioner argues that these facts tip the scale in its favor.
Respondent conversely contends that this factor supports the
position that the shareholder-employees were unreasonably
compensated because petitioner’s business was small and simple.
As we understand this argument, respondent believes petitioner’s
business was simple because a competitor could establish a
drywall construction business for a mere $300 investment, and
because the drywall business did not require substantial
scientific and highly technical knowledge. See B & D
Foundations, Inc. v. Commissioner, T.C. Memo. 2001-262.
We do not agree with either party’s analysis. Petitioner’s
consistent sales and net income do not show that its business was
large or complex. Nothing in the record supports a finding that
petitioner’s business was different from any other drywall
construction business, except that its business model was to
maintain consistent yearly sales. An independent investor would
have been unwilling to increase an employee’s compensation where
the corporation is not expected to increase sales because that
could have decreased the investor’s return (assuming costs
remained the same). Similarly, an independent investor might have
been hesitant to increase an employee’s compensation where the
employee had no substantial or specified training.
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